A look at the impact of the new 2022 Financial Fair Play Rules on Man Utd

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Messier1994

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Edit: See updates figures and new summary in post #60: https://www.redcafe.net/threads/a-l...ir-play-rules-on-man-utd.474688/post-29977585

UEFA adopted new Financial Fair Play (FFP) rules in April 2022. I have seen some articles on these new rules, but no specific breakdown, and thought it would be interesting to look into them more. I found a few key takeaways looking at them from a practical point of view that haven't been covered much in the articles I have seen. These takeaways are especially linked to the sanction system which differs for each rule, which means that they directly will impact how clubs are run. Especially in relation to the Football Earnings Rule and the Squad Cost Rule, where the later implements a 'Soft Cap" system to European Football using a common North American pro league term. More on that below.

It is a safe assumption that these rules will significantly impact how (some) clubs are run, much more than the previous set of rules. Overall, I think they are very good for Manchester United -- long term. But complying with them are no 'walk in the park' for any club. And like with everything else, the poor management of our club has of course not done wonders for us in relation to these rules and we could be in a bit of a bin initially.

What are the rules?
Four distinct rules can be extracted from the new UEFA Club Licensing and Financial Sustainability Regulations Rulebook (in itself 120 pages long, by the way, it can be noted that the previous title "Financial Fair Play" have been replaced with "Financial Sustainability Rulebook", so perhaps the correct abbreviation going forward should be FSR). They are:
1. The Net Equity Rule
2. The No Overdue Payments Rule
3. The Football Earnings Rule
4. The Squad Cost Rule

The Net Equity Rule
General
The Net Equity Rule should have little impact on a club like Man Utd. It simply means that a club most have more assets than liabilities. Anyone incurring more debt than they have means will eventually fall bankrupt. But by taking longer loans, you can buy players and pay bills while your balance sheet is eroded. It is fairly common that an owner lends money to his club, that say should be repaid over 10 years. If that money is used to buy players which are signed to 5 year deals, it will not cause a concern as of Day 1. But as the players value is amortized over the term of the player's contract (5 years), the Clubs balance sheet will be eroded unless the club generates a profit which exceeds the amortizations. Hence, this rule will put a halt to clubs living on loans at an earlier point than they cash-flow would (if no profit is generated). In many cases, it will probably result in these owners converting their debt to equity of the Club instead of keeping the club in a stranglehold.

Manchester United -- the Net Equity Rule
As can be seen below, we are in the clear relating to our net equity. But it is certainly trending in the wrong direction.


The No Overdue Payment Rule
The No Overdue Payment Rule is as basic as it sounds, and the sanction is really severe. Clubs simply must pay their bills if they want to participate in UEFA tournaments. I have not looked at the old FFP rules, but I think this provisions was included in those rules too and I saw a remark that late payments on transfers have gone from being fairly common back in the day to basically being abolished right now.

The Football Earnings Rule
General
The two material provisions of the new rules are the Football Earnings Rule and the Squad Cost Rule. In a simplified form, the Football Earnings Rule can be described as that a club must have higher earnings than expenses. I.e., a football club is not allowed to be run with losses.

But that is in its simplified form, in reality it is more complex. First of all, whether a club is profitable or is run with a loss is not determined in the same way as in the club's Annual Report. Instead the rule is based on three defined concepts: Relevant Earnings, Relevant Expenses and Relevant Investments.

The Football Earnings Rule is measured over a calendar year and will first be active during 2023, and clubs will be held responsible for any violation in May 2024 (with the FFP it took several years after a violation before someone was sanctioned).

How it is calculated
Relevant Earnings and Relevant Expenses are in practice not far away from what Manchester United plc. The items that cannot be included can be divided into three categories: The first is items that could be used to 'cook the books', the second is depreciation/impairment of tangible assets since UEFA want to encourage investments in a Club's infrastructure and the third is that the result is calculated pre-tax, which among other things results in that a club is not punished from being located in a high tax area or, vice versa, does not benefit from being located in a low tax environment.

After the Relevant Earnings are reduced with the Relevant Expenses, a Club may adjust the result upwards if it has made Relevant Investments. This is an interesting feature that explains why many clubs around us act as they do. Relevant Investments refers to investments in stadium and training-facility, spending on youth academy (including transfer fees for youth players) and women's team. So what does this mean in reality? First of all, it explains why Chelsea just spent a ton on buying up 3-4 youth players. Basically, if you spend 100m on your Youth Academy and it results in that you sell players for 125m, it results in a profit of 125m in the perspective of the Football Earnings Rule. In the same way, a club may make investments in its stadium and training facility without it impacting its standing in relation to the Football Earning Rule. One relevant question for us is, is Amad Diallot for example a youth player in this context? How is that established? Should be some additional guidelines out there, but I haven't found that.

The Football Earnings Rule is measured over 3 years in aggregate, and clubs are allowed to deviate from the rule with either MEUR 5, MEUR 60 or MEUR 70, depending on if certain conditions are met. So over three years, you could potentially make a loss of up to MEUR 70, if certain conditions are met. The condition to be allowed to register a loss of up to MEUR 60, is that your equity exceeds the loss you have made. As can be seen above, our Equity is over 100m, meaning that we could make an aggregated loss of up to MEUR 60 with some margin. It is however harder to be able to utilize the last MEUR 10 which allows you losses of up to MEUR 70 over three years. I won't get into detail on these provisions, but one condition is that a Club must have "Sustainable Debt", which means that the debt cannot exceed the average result over a 4 year period times three. With the Covid years included as well as last year, I doubt we will meet that criteria.

How it is sanctioned
The Football Earnings Rule is heavily sanctioned and cannot be disregarded by a Club. What will happen if a club breaches the Football Earnings Rule. At first, the club will be forced to enter into a settlement agreement with UEFA which can include fines and restrictions on number of players that can be used in tournaments as well as obligations for the club to clear up its economy. I.e. not very harsh. But if they conditions of the settlement agreement is not met, the sactions are progressive and will ultimately lead to the club being banned from participating in UEFA tournaments.

How does Manchester United stand?
Manchster United plc does not report all items relevant to calculate how we stand in relation to the Football Earnings Rule, so some assumptions must be made. To be clear, this is a high-level assessment of whether the plc is in line with the Football Earnings Rule, and its not meant to be a perfect forecast. The Football Earnings Rule will first be measured over the calendar year of 2023, 2022 and 2021, the below numbers are as per the plc's Annual Report meaured from 1 July to 30 June. The main guess work is done on the items investments in the Youth Academy and the Women's team (I guesstimated it to be MEUR 10 and 5 respectively). But I am not an accountant, any input to is greatly appreciated!

The Key Figure here is -66,661 (k£). That is the sum of adding up all Relevant Income, subtracting all Relevant Expenses, and then adding all Relevant Investments. The Acceptable Deviation from this, will be MEUR 60, which means that we would be in a bit of a problem if we do not turn a profit during 2023. That profit must be pretty significant.

I would definitely not rule out that we could get into problems with the Football Earnings Rule and possibly face a fine in April 2024. What can we do to improve our results under the Football Earnings Rule? First of all, remember that "spending" on transfer fees does not impact our result here negatively. If we buy players for 150m and sign them to 5 year contracts, in our books it affects our result with zero initially and then minus 30 million per year. Cutting salary directly impacts our earnings. More than anything, we benefit from selling players who have been developed in the Youth System or that have run out their initial contract with us that since have been renewed. But it is important to remember that a big part of our loss during the financial year 2021/2022 was due to the pound tanking vs the USD, which our debt is in. That is a one-off item, that in addition will come back of the pound recovers. Usually currency fluctuations tends to bounce back a bit over time even if there is no underlying change in an economy.

If we get a fine for the financial period of 2023, 2022 and 2021, we must be in the green in after 2024, or the sanctions will become much stiffer. I don't really see any concern there to be honest. There are probably other clubs out there with much much bigger problems in this regard (would be interesting to watch Juventus for example).

The Squad Cost Rule
General
The Squad Cost Rule brings the most interesting new feature to the FFP rules. Simplified, it means that the cost for a squad cannot be more than 70 percent of the result of a club. It will be grandfathered in starting at 90% for 23/24, 80% for 24/25 before reaching 70% for 25/26.

How it is calculated
The formula sets out that the Squad Cost Ratio is calculated by the sum of:
i. employee benefit expenses in respect of relevant persons;
ii. amortisation/impairment of relevant persons’ costs; and
iii. costs of agents/intermediaries/connected parties (if not included in i or ii above);
being divided by the sum of:
iv. adjusted operating revenue; and
v. net profit/loss on disposal of relevant persons’ registrations and other transfer income/expenses.

The relevant periods for the calculation of the squad cost ratio are:
a. the 12-month period to the 31 December during the licence season for elements i) to iv) above; and
b. the 36 months to the 31 December during the licence season, prorated to 12 months, for element v) above.

If we sign a player for 100m and pay him 10m per year over 5 years, it will add 100/5=20m plus 10m, ie 30m, to the nominator of the above equation. For us to get a 70% ratio -- we would need to have a revenue of 43m. Or for every 100m of revenue, we can spend 70m on players.

How is it sanctioned?
The Squad Cost Rule in effect implements what often in the US is referred to as a "Soft Cap". I.e., you have to pay a fine if you exceed the cap -- but you can keep doing it for as long as you like if you are prepared to ant up (but fees will count towards the Football Revenue Rule). This is how the fine is calculated. It will make more sense after we have looked at the numbers below and how they come into effect in a practical example. But in short, if you as a First Time Breach exceeds your Squad Cost Rule by overspending with 30%, you have to pay a fine that is 75%-100% of what you overspend. So if like Man City overspends with 50m per year 5 years in a row, they will end up paying a yearly fee of 37.5-50m to UEFA.


What is Manchester United's Squad Cost Ratio?


EDIT 29 December 2022: I have updated the above spread sheet since realizing that Manchester United plc have a boatload of persons employed, namely 1030 persons. Only football players and the head coach counts against the Squad Cost Rule. The salaries -- as reported by sportrac -- for our professional players and ETH adds up to 220m over 12 months. First of all, the above number includes both Ole's severance and Ronaldo's salary. That takes away 30m from our salary for 2023. If our 1,000 non-Relevant Persons employees on average makes 75k a year. Even if there surely are like 50-100 high paid individuals besides the players and HC, there will be a ton of janitors, cleaners and the likes making less than the UK average of around 30k per year, I guess. All sites only have the weekly salary, its obvious that bonuses and stuff like that aren't included. Depressing since we pay so much already looking at weekly salaries alone, but I recon its the same for everyone. So I think it seems reasonable to remove 30m from the numbers above, and an additional 30m for 2022. That gives us the below numbers. Look pretty good.


This is the result I get when I run our numbers. As I understand it, we report costs of agents etc as a part of the transfer fee, which results in that number being zero. So what we can see is that we are ways off the initial 90% threshold for the 23/24 season. But over the coming 5 year period, we must increase revenue to increase our ability to spend while also getting the ratio down to the 70% threshold.
 
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Niemans

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Great post as usual. A comparison of several clubs including PSG would be interesting.
 

ROFLUTION

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Great post, thanks for taking the time. I wonder what a oil/state take over will have of effect on our books
 

Messier1994

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Great post as usual. A comparison of several clubs including PSG would be interesting.
Yeah, definitely, and while it remains to be seen what is done, the rules expressly states that UEFA carefully will examine if for example sponsor incomes are genuine.

I am 100% sure some teams will have to make adjustments. I am not well versed with the economy of certain clubs, but you suspect that it will contain some sour pills for some Italian clubs for example.

I am also going to try to map how the amortization of our squad looks.

Great post, thanks for taking the time. I wonder what a oil/state take over will have of effect on our books
Yeah, need to analyze these things. I need to check, but I don’t think a capital contribution count as a Relevant Income. But with the money from a contribution, you can of course cut costs by paying off debt for example.

I am certain these rules be discussed a great deal when they enter into force and start to have an effect the coming years. Because the economy of for example a football club is a very complex “eco system”, and if you mess with it, it gets effects that are very hard to foresee.

For example, for us, the way dividend and capital contributions are treated get an absurd effect. Dividend count the same as spending money on player wages, while a capital contribution does not count as revenue.

The idea behind the company form these clubs are run in is that if the company makes a profit — and doesn’t need it for investments — it can distribute it as dividend to the shareholders. Then when there is an need for an investment in the company, the shareholders can make a capital contribution through for example subscribing for new shares in a share issue. With these FPP rules, dividend counts as an expense but capital contribution doesn’t count as an income. Fine, count dividend as a cost, but it’s absurd that a club that has paid dividend for 10 years should be punished if it in year 11 get a capital contribution.

Another thing is how players are amortized. The purpose of a profit and loss statement and a balance sheet is — not — to accurately reflect the state of a company. It aims to create a balance. Create a link between what comes in and what goes out. I am not an accountant, but there are many items that often doesn’t even remotely reflect an assets fair value in a balance sheet, like shares of an subsidiary with a business built up from scratch can be assigned more or less no value even if it turned into a billion pound company. Same with property that has increased a ton in value.

With the way these FPP rules are structured, if City for example needs to improve its earnings by selling players, who would they chose, Gralish or Foden? There should be no reason for the FPP rules to “steer” them into choosing one of them. But in reality, if they sell Foden for 80m it becomes an 80m profit instantly for them. If they sell Grealish for 80m, it instead counts as a 20m loss and don’t help them at all. In effect, a club that wants to improve its earnings are incentivized to sell homegrown players.

Thanks for posting.
Many thanks!
 

Messier1994

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Tldr City will get away with anything.

Also, shouldn't this be in the Football Forum?
City have built a group of clubs to gain advantages in the areas these rules measure. Same with Chelsea, they are built to excel in the areas which these rules premiere.

Sure, City should have been kicked out of European competitions for downright cheating these rules back in the day. But not sure they are going to violate them going forward. Need to look at their finance situation.

BTW, it’s not a thread about FFP (which should be in the Football Forum), but on Manchester United’s compliance with the FFP and on which room we might have going forward. Not sure which forum is right, but selected this one since it’s directly about the club.
 
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GazTheLegend

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Sure, City should have been kicked out of European competitions for downright cheating these rules back in the day. But not sure they are going to violate them going forward.
They've shown they can and will violate any law with impunity. These measures are irrelevant, they may appear to toe the line in some respects but they've shown exactly what these laws are worth in reality. The extent to which they REQUIRE to fudge figures may change but they are and will always simply cheat their way though their existence, see: the police figures for their attendance vs the club released figures.
 

Messier1994

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I have tried to map the amortization of our players. It was interesting, I can tell that I did not exactly become less Glazers Out after looking into the details of our dealings... But that is another topic. I will post my graph below, if anyone want these spread sheets don't hesitate to ask, can email them if you DM me. Think the biggest gain from following our amortization structure will come over time. But I am sure there also are other interesting information in the graphs that I can't spot.

My main takeaways are the following:
-We are a bit in the bind with the Football Earnings Rule. Management have mentioned how we must be careful with new signings due to among other things the FFP rules. Signing new players does not instantly impact a club's revenue, but over time it of course does. Jadon Sancho for example impacts our yearly result with minus £35,200,000. 17 million in yearly amortizations and 18.2 million in yearly salary.

-Will we make a profit or loss when/if we sell players? That depends on if the player's Remaining Book Value is greater than the Transfer Fee we obtain. The Remaining Book Value of all our players are listed below, but I thought I highlight a few that we might consider selling:
Harry Maguire -- 26m
Victor Lindelof -- 3m
Aaron Wan-Bissaka -- 9m
Donny van de Beek -- 14m
Facundo Pellestri -- 1.8m

-The most interesting takeaway from me is that the amortization amount you get from adding up all reported Transfer Fees for our players -- without add-ons -- and amortize them in a strait line over the term of their contracts (i.e. in accordance with the applicable accounting standards) -- you get a number that deviates very little from our reported amortization. In accordance with the below spreadsheet, our amortization for the full 2022/23 season should be 140.6m or 35.15m per quarter. Our reported amortization in the Quarterly Report for the 1st quarter of the 2022/23 season was 40.1m, which is only 14 percent more the 35.15m figure in the spread sheet. This is interesting because it is (almost) never reported what sign-on bonus a player gets or if a player meets a criteria for an add-on. This would not be the case with some other clubs, that is for certain...



Next up: I am looking forward to running some scenarios. How would it affect us if a new owner came in and scrapped our debt? After that, I will have a look at Juventus, City, Newcastle, Chelsea, Liverpool and Arsenal.
 
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Messier1994

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They've shown they can and will violate any law with impunity. These measures are irrelevant, they may appear to toe the line in some respects but they've shown exactly what these laws are worth in reality. The extent to which they REQUIRE to fudge figures may change but they are and will always simply cheat their way though their existence, see: the police figures for their attendance vs the club released figures.
Just started looking at City's report, and one thing that sticks out is that the item "Other commercial activities", i.e. sponsorships and merch etc, accounts for 310m or 50% of their total revenue. For Liverpool its 30%. They dwarf our 257m. Of course bullocks.

One thing that does help their financials status is that they employ under 550 people while we employ close to 1050. But that just further shows how inflated their incomes is. Employees generate income.
 
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Messier1994

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EDIT 29 December 2022: I have updated the above spread sheet since realizing that Manchester United plc have a boatload of persons employed, namely 1030 persons. Only football players and the head coach counts against the Squad Cost Rule. The salaries -- as reported by sportrac -- for our professional players and ETH adds up to 220m over 12 months. First of all, the above number includes both Ole's severance and Ronaldo's salary. That takes away 30m from our salary for 2023. If our 1,000 non-Relevant Persons employees on average makes 75k a year. Even if there surely are like 50-100 high paid individuals besides the players and HC, there will be a ton of janitors, cleaners and the likes making less than the UK average of around 30k per year, I guess. All sites only have the weekly salary, its obvious that bonuses and stuff like that aren't included. Depressing since we pay so much already looking at weekly salaries alone, but I recon its the same for everyone. So I think it seems reasonable to remove 30m from the numbers above, and an additional 30m for 2022. That gives us the below numbers. Look pretty good. The thresholds for 23/24 will be no more than 90%, then no more than 80% for 24/25 and no more than 70% for 25/26.
 

JohnnyKills

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They've shown they can and will violate any law with impunity. These measures are irrelevant, they may appear to toe the line in some respects but they've shown exactly what these laws are worth in reality. The extent to which they REQUIRE to fudge figures may change but they are and will always simply cheat their way though their existence, see: the police figures for their attendance vs the club released figures.
I don't think City have to flout the rules tbh. They're essentially running a dictatorship, so the benefits they can provide in kind, no questions asked, are worth millions on their own.

Why risk breaching FFP when you can shut the most luxurious shopping mall in Abu Dhabi for a day and let the players take what they want? Or let them stay in the penthouse suite of the best hotel for free whenever they like?

No evidence for this at all, just that it seems a logical strategy.
 

Gycraig

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I don't think City have to flout the rules tbh. They're essentially running a dictatorship, so the benefits they can provide in kind, no questions asked, are worth millions on their own.

Why risk breaching FFP when you can shut the most luxurious shopping mall in Abu Dhabi for a day and let the players take what they want? Or let them stay in the penthouse suite of the best hotel for free whenever they like?

No evidence for this at all, just that it seems a logical strategy.

Doesn’t seem like that great as perks to someone already on 100-300k a week tbh, not as much of a perk as doubling the wages under the table which seems to be the actual strategy.
 

Messier1994

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Even if we get new owners who are willing to spend that kind of money, I doubt we could do that and still comply with FFP.
I have tried to look at this. Obviously it is very hypothetical. But perhaps we can come to some conclusions.

1. First of all, what limits how much we can spend on transfers? We have to comply with the following rules:
a. The Net Equity Rule
b. The No Overdue Payments Rule
c. The Football Earnings Rule
d. The Squad Cost Rule

a. and b. are formalities for us.

Under the Football Earnings Rule, our Relevant Income minus Relevant Expense plus Relevant Investments may not be lower than minus 60m over a period of three years. Violating this rule once might not be the biggest deal. But after that you will get into a lot of problems. First of all, your losses may not be more than minus 10m over the three year period (instead of minus 60). And getting banned from UEFA Competitions should come fairly fast if you don't get the financials in order.

Under the Squad Equity Rule, basically, our yearly costs for acquisitions (amortizations) and salaries cannot exceed 90% of our relevant revenue for 23/24, 80% for 24/25 and then finally -- after the break-in period -- 70% yearly after that.

2. What does the Football Earnings Rule mean in practice for our spending if we get a new owner? How much can we spend in the summer of 2023?
General
After the 23/24 season, our result for 22/23 and 23/24 (normally its counted over 3 years, but as a transitional rule it will be counted over 2 years the first time, see rule 104.01 of the FSR) and may not be less than minus 60m (EUR). Remember, in the summer of 2023 we can spend more or less as much as we want, but if we overspend we will into trouble in the summer of 2024. There is nothing preventing a Club from making bad decisions, and you will pay for them after a year. So what we can spend next summer, will depend on a forecast for what our Earnings will be after the 23/24 season.

It is great for us that the Annus Horribilis of 21/22 will not be included (didn't know that when I wrote the OP)!! Obviously we don't know what the results will be for 22/23 and 23/24, but lets speculate. Any input on my guestimates are greatly appreciated!

Speculation on the Income for this and next season
This is how our income was divided for the last three years:
22/2121/2020/19
Sponsorship147,881140,209182,709
Retail, merchandising, licensing revenue109,93991,99696,335
Commercial257,820232,205279,044
Domestic competitions140,629174,683
115,415​
European competitions67,47773,82716,836
Other6,7416,3057,952
Broadcasting214,847254,815140,203
Matchday110,5347,09789,794
583,201494,117509,041

What will change for this season? We should lose 50m in TV money from European Competitions, right? There is a lot of inflation out there, we made a lot of money with our summer tour (our sponsorship income for July, August and September was 23m more in 22' than 21' largely due to the tour). Retail and merch were up with 5.3%. Gate was basically unchanged (except that we hosted the opening of the Womens Euros and a Rugby Final). I think that our revenue for 22/23 will be more or less unchanged compared to 21/20. Will we finish top 4 this season? That will have a big impact for our income for 23/24 of course.

Lets first look at what we can spend if the new owner does not do anything, i.e. pay of debt or becomes a sponsor of the team, and under the following assumptions:
*We do not make the CL this season
*We do not sell any players with profit (see my post above)
23/2422/2322/2121/2020/19
Sponsorship (+25m from Tour, 5% growth)181 525172 881147 881140 209182 709
Retail merchandising licensing revenue (+5%)121 208115 436109 93991 99696 335
Commercial302 733288 317257 820232 205279 044
Domestic competitions150 000150 000140 629174 683115 415
European competitions16 00016 00067 47773 82716 836
Other7 0007 0006 7416 3057 952
Broadcasting173 000173 000214 847254 815140 203
Matchday115 000115 000110 5347 09789 794
590 733576 317583 201494 117509 041

Speculation on our expenses for this and next season
So what will happen to our costs? A few things are clear from known changes and the Q1 report.
*We will not pay Ronaldo's 27m salary and we will not pay Ole's severance package of 24m, that is 50m in saved expenses.
*Our salaries are down 7% since we missed the CL
*Our Tour cost us 11m
*Amortization is up with 14%
*We made a one-off currency loss on foregin debt of 22m
*For the 23/24 season, the amortization of our signing of Fred and Dalot are off the books (14m in total)
*For the 23/24 season, DDG will get a lower wage (say we save 5m per year) and Phil Jones are off the books (3.9m)

This would roughly give us the following Operating Expenses
Operating Expense23/2422/2322/2121/2020/19
Employee benefit expense
326 351​
330 251​
384 141​
322 600​
284 029​
Amortization–intangible assets
158 667​
172 667​
151 462​
124 398​
126 756​
Other
167 917​
189 917​
156 917​
91 426​
111 419​
Total
652 935​
692 835​
692 520​
538 424​
522 204​

When calculating our results in accordance with the Football Earnings Rule, we get the following results:
EDIT: PLEASE SEE https://www.redcafe.net/threads/a-l...ir-play-rules-on-man-utd.474688/post-29916453 FOR LATEST UPDATED AND CORRECTED CALCULATIONS


Do you guys think this make sense? Basically, in 21/22 we made a 112m loss in this regard. Since then, we will lose about 50m in TV money from the CL while saving Ole's severance and Ronaldo's salary (this basically makes up for the lost CL money). In addition, finance costs are up a lot due to increased interest rates and especially the pound losing against the USD (one time loss of 22m). In addition Amortization is up a lot, and we don't count on and players' sold in this scenario.

This indicates that we are in a REALLY BAD STATE (!).

Under these assumptions, what could we spend on transfers in the summer of 2023? Simple answer is -- not -- nothing, its less than nothing. We would have to make major savings next season. If we make a loss of 159m this season and 114m next season, we would have an aggregate loss of 273m while the accepted loss only is 60m. That would mean that we would have to make massive savings. It could probably not be done during the span of a year without owners intervening, but on average its about 100m per season.

Are the above numbers correct? Its the first time I apply an complex set of new rules and I am not an accountant, but a lawyer. Lawyers are notoriously bad with figures. I could definitely make mistakes, and they could have a large impact. In addition, a lot of the above are based on estimates. But while those can be wrong, they won't be wrong by this much. Give or take 50m maybe, but that is nothing, we would still have to save 110m. And I could just as well err on the wrong side of caution here. Interest rates are going up, the pound is tanking. Can sponsors pull out if we miss the CL again? Etc. And I mean, the Football Earnings Rule is meant to ensure that clubs don't overspend. Last season we made a 150m loss before taxes, while playing in the CL. Then in the summer we spent 240m on transfers. I recon that it shouldn't be surprising that our financials don't look great.

3. What can we do to improve our Football Earnings?
A little context
Our new acquisitions cost a lot of money. For example a Casemiro cost us 30m per year in Amortization and Salary, Jadon Sancho cost us 35m per year, Antony is 26m, Martinez cost us 18m a year. So in reality, we are living on three guys like Sancho and Antony above our means. 100m a year is a lot, but we have some really expensive players.

Can we sell players? Does it help?
So a player impact our financials in three senses. First of all, the right to register each player is an intangible asset in our Balance Sheet. The value of the asset is as a starting point the same as what we paid for the player. If we sell a player, it will result in a profit in our accounts if the transfer fee is higher than the value at which the player is recorded in our balance sheet at any given time. Second of all, the value of that asset is amortized yearly in a straight line over the players contract. Thirdly, a player's salary is of course a cost. This is a break down of first, the remaining bookvalue all our players have, and second the total yearly cost for the player (i.e. amortization plus salary):

So what does this mean in practice? Take Harry Maguire as an example. If we sell him for 25m this summer of 2023, it means that we add 25m as cash (or as a receivable if the payment is deferred). At the same time, we delet his value in the balance sheet of 26.6m. The result is of course impacted with a minus 1.66m loss. At the same time, we don't have to pay his salaries anymore and we don't have to amortize his value any longer, so that is a yearly saving of app. 21.8m. All in all, selling Maguire for 25m in the summer of 2023 reduces our loss of app. 20m for the 23/24 season.

There is a lot of talks about how we must sell several players next summer. Its very hard to estimate what we can get for them. But hey, that haven't stopped us before. But I am going to be very modest in my estimated returns, since we just historically always have had a harder time selling players than we expected beforehand. I mean we tried to sell AWB last summer, and were offered what 10-15m for him? Has anything changed. Nah, not really. And its a fact that the biggest names goes for insane numbers, but then there is a huuuuge drop in returns for players who have tackled off a bit and aren't in the spotlight. Overall, I think I am more likely to err on the side of being too optimistic below -- in total. Sure someone might be undervalued, but if there is one name there we can't sell, it more than makes up for it probably.
Harry Magure -- Sold for 25m
Dean Henderson -- Sold for 20m
Donny van de Beek -- Sold for 12m
Aaron Wan-Bissaka -- Sold for 10m
Fred -- Sold for 7.5m
Pellestri -- Sold for 5m

If we could pull of all these sales, it would improve our earnings with 102m for 23/24. That basically puts us in black for that season. But remember, we are probably still at least 125m minus from this season (my forecast was minus 158m). The accepted deviance is minus 60m, so it seems like we must improve our results with at least another 60-100m for 23/24 -- just to break even. Let alone be able to buy any players. And remember, we just sold 6 players without replacing them...

What can a new owner or investor do?
We normally associate an owner helping a club by the owner more or less giving the club money. This is called a capital contribution in this context. A capital contribution by a shareholder does not impact our results (correct me if I am wrong). It provides cash to the balance sheet, but at least normally it also increases the "equity" item on the debt side. So it doesn't result in a profit. So in brief, if a new owner comes in and gives us 150m, it doesn't help us.

We could pay of the debt of course -- and lower our financing costs, but its not a major bang for the buck so to speak in this context. Our debt totals app 680m and our finance costs amounts to 86m. If a new owner comes in and gifts us 680m, we save 86m per year. That might give us -- a little -- wiggle room so that we could afford perhaps the odd signing, but only if my calculations above are overstated. If they are correct, and we sell the players listed above, we would have to save another 30m before we could spend a penny on a new player.

What are others doing? The one thing that helps is of course if an owner comes in and gifts us money in the form of a "sponsorship". That is genuine revenue. If a new owner comes in and sponsors us with 150m -- we name the stadium Ineos Old Trafford or Qatar Old Trafford or whatever -- it instantly improves our results with 150m. If we do the above sales of players and get 150m extra in sponsor money -- it instantly means that we improve our Football Earnings with 252m, and since we only are minus with 213m, it means that we could incur costs of 39m.

Another way is of course to for example sell future TV rights, that is what Barca have done.

So what does -- for example -- 40m in "available Football Earnings" buy you? Just look at the schedule of players above and their costs. If we free up 40m in Football Earnings, we can incur 40m in additional Relevant Expenses. I.e. amortization plus salary for a player. A Lissandro Martinez is 18m in Relevant Expenses. A Jadon Sancho is 35m.

4. The Squad Cost Rule
TBC -- I don't think this rule will impact us at all as long as we comply with the Football Earnings Rule. And its getting late...
 
Last edited:

Messier1994

Deserves a tagline!
Joined
Oct 7, 2022
Messages
1,028
TL;DR I was actually very surprised that we were in such a bad shape for next summer (which would mean that we would be found to violate the rules in the summer of 2024). Any input on estimates and interpretations is greatly appreciated. Long story short, if my estimates and interpretations are correct, we overspent a ton this summer and can't spend a penny next summer (unless a new owner really bails us out).
 

Red the Bear

Something less generic
Joined
Aug 26, 2021
Messages
7,808
I have tried to look at this. Obviously it is very hypothetical. But perhaps we can come to some conclusions.

1. First of all, what limits how much we can spend on transfers? We have to comply with the following rules:
a. The Net Equity Rule
b. The No Overdue Payments Rule
c. The Football Earnings Rule
d. The Squad Cost Rule

a. and b. are formalities for us.

Under the Football Earnings Rule, our Relevant Income minus Relevant Expense plus Relevant Investments may not be lower than minus 60m over a period of three years. Violating this rule once might not be the biggest deal. But after that you will get into a lot of problems. First of all, your losses may not be more than minus 10m over the three year period (instead of minus 60). And getting banned from UEFA Competitions should come fairly fast if you don't get the financials in order.

Under the Squad Equity Rule, basically, our yearly costs for acquisitions (amortizations) and salaries cannot exceed 90% of our relevant revenue for 23/24, 80% for 24/25 and then finally -- after the break-in period -- 70% yearly after that.

2. What does the Football Earnings Rule mean in practice for our spending if we get a new owner? How much can we spend in the summer of 2023?
General
After the 23/24 season, our result for 22/23 and 23/24 (normally its counted over 3 years, but as a transitional rule it will be counted over 2 years the first time, see rule 104.01 of the FSR) and may not be less than minus 60m (EUR). Remember, in the summer of 2023 we can spend more or less as much as we want, but if we overspend we will into trouble in the summer of 2024. There is nothing preventing a Club from making bad decisions, and you will pay for them after a year. So what we can spend next summer, will depend on a forecast for what our Earnings will be after the 23/24 season.

It is great for us that the Annus Horribilis of 21/22 will not be included (didn't know that when I wrote the OP)!! Obviously we don't know what the results will be for 22/23 and 23/24, but lets speculate. Any input on my guestimates are greatly appreciated!

Speculation on the Income for this and next season
This is how our income was divided for the last three years:
22/2121/2020/19
Sponsorship147,881140,209182,709
Retail, merchandising, licensing revenue109,93991,99696,335
Commercial257,820232,205279,044
Domestic competitions140,629174,683
115,415​
European competitions67,47773,82716,836
Other6,7416,3057,952
Broadcasting214,847254,815140,203
Matchday110,5347,09789,794
583,201494,117509,041

What will change for this season? We should lose 50m in TV money from European Competitions, right? There is a lot of inflation out there, we made a lot of money with our summer tour (our sponsorship income for July, August and September was 23m more in 22' than 21' largely due to the tour). Retail and merch were up with 5.3%. Gate was basically unchanged (except that we hosted the opening of the Womens Euros and a Rugby Final). I think that our revenue for 22/23 will be more or less unchanged compared to 21/20. Will we finish top 4 this season? That will have a big impact for our income for 23/24 of course.

Lets first look at what we can spend if the new owner does not do anything, i.e. pay of debt or becomes a sponsor of the team, and under the following assumptions:
*We do not make the CL this season
*We do not sell any players with profit (see my post above)
23/2422/2322/2121/2020/19
Sponsorship (+25m from Tour, 5% growth)181 525172 881147 881140 209182 709
Retail merchandising licensing revenue (+5%)121 208115 436109 93991 99696 335
Commercial302 733288 317257 820232 205279 044
Domestic competitions150 000150 000140 629174 683115 415
European competitions16 00016 00067 47773 82716 836
Other7 0007 0006 7416 3057 952
Broadcasting173 000173 000214 847254 815140 203
Matchday115 000115 000110 5347 09789 794
590 733576 317583 201494 117509 041

Speculation on our expenses for this and next season
So what will happen to our costs? A few things are clear from known changes and the Q1 report.
*We will not pay Ronaldo's 27m salary and we will not pay Ole's severance package of 24m, that is 50m in saved expenses.
*Our salaries are down 7% since we missed the CL
*Our Tour cost us 11m
*Amortization is up with 14%
*We made a one-off currency loss on foregin debt of 22m
*For the 23/24 season, the amortization of our signing of Fred and Dalot are off the books (14m in total)
*For the 23/24 season, DDG will get a lower wage (say we save 5m per year) and Phil Jones are off the books (3.9m)

This would roughly give us the following Operating Expenses
Operating Expense23/2422/2322/2121/2020/19
Employee benefit expense
326 351​
330 251​
384 141​
322 600​
284 029​
Amortization–intangible assets
158 667​
172 667​
151 462​
124 398​
126 756​
Other
167 917​
189 917​
156 917​
91 426​
111 419​
Total
652 935​
692 835​
692 520​
538 424​
522 204​

When calculating our results in accordance with the Football Earnings Rule, we get the following results:


Do you guys think this make sense? Basically, in 21/22 we made a 112m loss in this regard. Since then, we will lose about 50m in TV money from the CL while saving Ole's severance and Ronaldo's salary (this basically makes up for the lost CL money). In addition, finance costs are up a lot due to increased interest rates and especially the pound losing against the USD (one time loss of 22m). In addition Amortization is up a lot, and we don't count on and players' sold in this scenario.

This indicates that we are in a REALLY BAD STATE (!).

Under these assumptions, what could we spend on transfers in the summer of 2023? Simple answer is -- not -- nothing, its less than nothing. We would have to make major savings next season. If we make a loss of 159m this season and 114m next season, we would have an aggregate loss of 273m while the accepted loss only is 60m. That would mean that we would have to make massive savings. It could probably not be done during the span of a year without owners intervening, but on average its about 100m per season.

Are the above numbers correct? Its the first time I apply an complex set of new rules and I am not an accountant, but a lawyer. Lawyers are notoriously bad with figures. I could definitely make mistakes, and they could have a large impact. In addition, a lot of the above are based on estimates. But while those can be wrong, they won't be wrong by this much. Give or take 50m maybe, but that is nothing, we would still have to save 110m. And I could just as well err on the wrong side of caution here. Interest rates are going up, the pound is tanking. Can sponsors pull out if we miss the CL again? Etc. And I mean, the Football Earnings Rule is meant to ensure that clubs don't overspend. Last season we made a 150m loss before taxes, while playing in the CL. Then in the summer we spent 240m on transfers. I recon that it shouldn't be surprising that our financials don't look great.

3. What can we do to improve our Football Earnings?
A little context
Our new acquisitions cost a lot of money. For example a Casemiro cost us 30m per year in Amortization and Salary, Jadon Sancho cost us 35m per year, Antony is 26m, Martinez cost us 18m a year. So in reality, we are living on three guys like Sancho and Antony above our means. 100m a year is a lot, but we have some really expensive players.

Can we sell players? Does it help?
So a player impact our financials in three senses. First of all, the right to register each player is an intangible asset in our Balance Sheet. The value of the asset is as a starting point the same as what we paid for the player. If we sell a player, it will result in a profit in our accounts if the transfer fee is higher than the value at which the player is recorded in our balance sheet at any given time. Second of all, the value of that asset is amortized yearly in a straight line over the players contract. Thirdly, a player's salary is of course a cost. This is a break down of first, the remaining bookvalue all our players have, and second the total yearly cost for the player (i.e. amortization plus salary):

So what does this mean in practice? Take Harry Maguire as an example. If we sell him for 25m this summer of 2023, it means that we add 25m as cash (or as a receivable if the payment is deferred). At the same time, we delet his value in the balance sheet of 26.6m. The result is of course impacted with a minus 1.66m loss. At the same time, we don't have to pay his salaries anymore and we don't have to amortize his value any longer, so that is a yearly saving of app. 21.8m. All in all, selling Maguire for 25m in the summer of 2023 reduces our loss of app. 20m for the 23/24 season.

There is a lot of talks about how we must sell several players next summer. Its very hard to estimate what we can get for them. But hey, that haven't stopped us before. But I am going to be very modest in my estimated returns, since we just historically always have had a harder time selling players than we expected beforehand. I mean we tried to sell AWB last summer, and were offered what 10-15m for him? Has anything changed. Nah, not really. And its a fact that the biggest names goes for insane numbers, but then there is a huuuuge drop in returns for players who have tackled off a bit and aren't in the spotlight. Overall, I think I am more likely to err on the side of being too optimistic below -- in total. Sure someone might be undervalued, but if there is one name there we can't sell, it more than makes up for it probably.
Harry Magure -- Sold for 25m
Dean Henderson -- Sold for 20m
Donny van de Beek -- Sold for 12m
Aaron Wan-Bissaka -- Sold for 10m
Fred -- Sold for 7.5m
Pellestri -- Sold for 5m

If we could pull of all these sales, it would improve our earnings with 102m for 23/24. That basically puts us in black for that season. But remember, we are probably still at least 125m minus from this season (my forecast was minus 158m). The accepted deviance is minus 60m, so it seems like we must improve our results with at least another 60-100m for 23/24 -- just to break even. Let alone be able to buy any players. And remember, we just sold 6 players without replacing them...

What can a new owner or investor do?
We normally associate an owner helping a club by the owner more or less giving the club money. This is called a capital contribution in this context. A capital contribution by a shareholder does not impact our results (correct me if I am wrong). It provides cash to the balance sheet, but at least normally it also increases the "equity" item on the debt side. So it doesn't result in a profit. So in brief, if a new owner comes in and gives us 150m, it doesn't help us.

We could pay of the debt of course -- and lower our financing costs, but its not a major bang for the buck so to speak in this context. Our debt totals app 680m and our finance costs amounts to 86m. If a new owner comes in and gifts us 680m, we save 86m per year. That might give us -- a little -- wiggle room so that we could afford perhaps the odd signing, but only if my calculations above are overstated. If they are correct, and we sell the players listed above, we would have to save another 30m before we could spend a penny on a new player.

What are others doing? The one thing that helps is of course if an owner comes in and gifts us money in the form of a "sponsorship". That is genuine revenue. If a new owner comes in and sponsors us with 150m -- we name the stadium Ineos Old Trafford or Qatar Old Trafford or whatever -- it instantly improves our results with 150m. If we do the above sales of players and get 150m extra in sponsor money -- it instantly means that we improve our Football Earnings with 252m, and since we only are minus with 213m, it means that we could incur costs of 39m.

Another way is of course to for example sell future TV rights, that is what Barca have done.

So what does -- for example -- 40m in "available Football Earnings" buy you? Just look at the schedule of players above and their costs. If we free up 40m in Football Earnings, we can incur 40m in additional Relevant Expenses. I.e. amortization plus salary for a player. A Lissandro Martinez is 18m in Relevant Expenses. A Jadon Sancho is 35m.

4. The Squad Cost Rule
TBC -- I don't think this rule will impact us at all as long as we comply with the Football Earnings Rule. And its getting late...
Did you write this yourself?

Very informative, nice.

You've done a wonderful job in this thread.
 

andersj

Nick Powell Expert
Joined
Aug 7, 2004
Messages
3,699
Location
Copenhagen
I have tried to look at this. Obviously it is very hypothetical. But perhaps we can come to some conclusions.

1. First of all, what limits how much we can spend on transfers? We have to comply with the following rules:
a. The Net Equity Rule
b. The No Overdue Payments Rule
c. The Football Earnings Rule
d. The Squad Cost Rule

a. and b. are formalities for us.

Under the Football Earnings Rule, our Relevant Income minus Relevant Expense plus Relevant Investments may not be lower than minus 60m over a period of three years. Violating this rule once might not be the biggest deal. But after that you will get into a lot of problems. First of all, your losses may not be more than minus 10m over the three year period (instead of minus 60). And getting banned from UEFA Competitions should come fairly fast if you don't get the financials in order.

Under the Squad Equity Rule, basically, our yearly costs for acquisitions (amortizations) and salaries cannot exceed 90% of our relevant revenue for 23/24, 80% for 24/25 and then finally -- after the break-in period -- 70% yearly after that.

2. What does the Football Earnings Rule mean in practice for our spending if we get a new owner? How much can we spend in the summer of 2023?
General
After the 23/24 season, our result for 22/23 and 23/24 (normally its counted over 3 years, but as a transitional rule it will be counted over 2 years the first time, see rule 104.01 of the FSR) and may not be less than minus 60m (EUR). Remember, in the summer of 2023 we can spend more or less as much as we want, but if we overspend we will into trouble in the summer of 2024. There is nothing preventing a Club from making bad decisions, and you will pay for them after a year. So what we can spend next summer, will depend on a forecast for what our Earnings will be after the 23/24 season.

It is great for us that the Annus Horribilis of 21/22 will not be included (didn't know that when I wrote the OP)!! Obviously we don't know what the results will be for 22/23 and 23/24, but lets speculate. Any input on my guestimates are greatly appreciated!

Speculation on the Income for this and next season
This is how our income was divided for the last three years:
22/2121/2020/19
Sponsorship147,881140,209182,709
Retail, merchandising, licensing revenue109,93991,99696,335
Commercial257,820232,205279,044
Domestic competitions140,629174,683
115,415​
European competitions67,47773,82716,836
Other6,7416,3057,952
Broadcasting214,847254,815140,203
Matchday110,5347,09789,794
583,201494,117509,041

What will change for this season? We should lose 50m in TV money from European Competitions, right? There is a lot of inflation out there, we made a lot of money with our summer tour (our sponsorship income for July, August and September was 23m more in 22' than 21' largely due to the tour). Retail and merch were up with 5.3%. Gate was basically unchanged (except that we hosted the opening of the Womens Euros and a Rugby Final). I think that our revenue for 22/23 will be more or less unchanged compared to 21/20. Will we finish top 4 this season? That will have a big impact for our income for 23/24 of course.

Lets first look at what we can spend if the new owner does not do anything, i.e. pay of debt or becomes a sponsor of the team, and under the following assumptions:
*We do not make the CL this season
*We do not sell any players with profit (see my post above)
23/2422/2322/2121/2020/19
Sponsorship (+25m from Tour, 5% growth)181 525172 881147 881140 209182 709
Retail merchandising licensing revenue (+5%)121 208115 436109 93991 99696 335
Commercial302 733288 317257 820232 205279 044
Domestic competitions150 000150 000140 629174 683115 415
European competitions16 00016 00067 47773 82716 836
Other7 0007 0006 7416 3057 952
Broadcasting173 000173 000214 847254 815140 203
Matchday115 000115 000110 5347 09789 794
590 733576 317583 201494 117509 041

Speculation on our expenses for this and next season
So what will happen to our costs? A few things are clear from known changes and the Q1 report.
*We will not pay Ronaldo's 27m salary and we will not pay Ole's severance package of 24m, that is 50m in saved expenses.
*Our salaries are down 7% since we missed the CL
*Our Tour cost us 11m
*Amortization is up with 14%
*We made a one-off currency loss on foregin debt of 22m
*For the 23/24 season, the amortization of our signing of Fred and Dalot are off the books (14m in total)
*For the 23/24 season, DDG will get a lower wage (say we save 5m per year) and Phil Jones are off the books (3.9m)

This would roughly give us the following Operating Expenses
Operating Expense23/2422/2322/2121/2020/19
Employee benefit expense
326 351​
330 251​
384 141​
322 600​
284 029​
Amortization–intangible assets
158 667​
172 667​
151 462​
124 398​
126 756​
Other
167 917​
189 917​
156 917​
91 426​
111 419​
Total
652 935​
692 835​
692 520​
538 424​
522 204​

When calculating our results in accordance with the Football Earnings Rule, we get the following results:


Do you guys think this make sense? Basically, in 21/22 we made a 112m loss in this regard. Since then, we will lose about 50m in TV money from the CL while saving Ole's severance and Ronaldo's salary (this basically makes up for the lost CL money). In addition, finance costs are up a lot due to increased interest rates and especially the pound losing against the USD (one time loss of 22m). In addition Amortization is up a lot, and we don't count on and players' sold in this scenario.

This indicates that we are in a REALLY BAD STATE (!).

Under these assumptions, what could we spend on transfers in the summer of 2023? Simple answer is -- not -- nothing, its less than nothing. We would have to make major savings next season. If we make a loss of 159m this season and 114m next season, we would have an aggregate loss of 273m while the accepted loss only is 60m. That would mean that we would have to make massive savings. It could probably not be done during the span of a year without owners intervening, but on average its about 100m per season.

Are the above numbers correct? Its the first time I apply an complex set of new rules and I am not an accountant, but a lawyer. Lawyers are notoriously bad with figures. I could definitely make mistakes, and they could have a large impact. In addition, a lot of the above are based on estimates. But while those can be wrong, they won't be wrong by this much. Give or take 50m maybe, but that is nothing, we would still have to save 110m. And I could just as well err on the wrong side of caution here. Interest rates are going up, the pound is tanking. Can sponsors pull out if we miss the CL again? Etc. And I mean, the Football Earnings Rule is meant to ensure that clubs don't overspend. Last season we made a 150m loss before taxes, while playing in the CL. Then in the summer we spent 240m on transfers. I recon that it shouldn't be surprising that our financials don't look great.

3. What can we do to improve our Football Earnings?
A little context
Our new acquisitions cost a lot of money. For example a Casemiro cost us 30m per year in Amortization and Salary, Jadon Sancho cost us 35m per year, Antony is 26m, Martinez cost us 18m a year. So in reality, we are living on three guys like Sancho and Antony above our means. 100m a year is a lot, but we have some really expensive players.

Can we sell players? Does it help?
So a player impact our financials in three senses. First of all, the right to register each player is an intangible asset in our Balance Sheet. The value of the asset is as a starting point the same as what we paid for the player. If we sell a player, it will result in a profit in our accounts if the transfer fee is higher than the value at which the player is recorded in our balance sheet at any given time. Second of all, the value of that asset is amortized yearly in a straight line over the players contract. Thirdly, a player's salary is of course a cost. This is a break down of first, the remaining bookvalue all our players have, and second the total yearly cost for the player (i.e. amortization plus salary):

So what does this mean in practice? Take Harry Maguire as an example. If we sell him for 25m this summer of 2023, it means that we add 25m as cash (or as a receivable if the payment is deferred). At the same time, we delet his value in the balance sheet of 26.6m. The result is of course impacted with a minus 1.66m loss. At the same time, we don't have to pay his salaries anymore and we don't have to amortize his value any longer, so that is a yearly saving of app. 21.8m. All in all, selling Maguire for 25m in the summer of 2023 reduces our loss of app. 20m for the 23/24 season.

There is a lot of talks about how we must sell several players next summer. Its very hard to estimate what we can get for them. But hey, that haven't stopped us before. But I am going to be very modest in my estimated returns, since we just historically always have had a harder time selling players than we expected beforehand. I mean we tried to sell AWB last summer, and were offered what 10-15m for him? Has anything changed. Nah, not really. And its a fact that the biggest names goes for insane numbers, but then there is a huuuuge drop in returns for players who have tackled off a bit and aren't in the spotlight. Overall, I think I am more likely to err on the side of being too optimistic below -- in total. Sure someone might be undervalued, but if there is one name there we can't sell, it more than makes up for it probably.
Harry Magure -- Sold for 25m
Dean Henderson -- Sold for 20m
Donny van de Beek -- Sold for 12m
Aaron Wan-Bissaka -- Sold for 10m
Fred -- Sold for 7.5m
Pellestri -- Sold for 5m

If we could pull of all these sales, it would improve our earnings with 102m for 23/24. That basically puts us in black for that season. But remember, we are probably still at least 125m minus from this season (my forecast was minus 158m). The accepted deviance is minus 60m, so it seems like we must improve our results with at least another 60-100m for 23/24 -- just to break even. Let alone be able to buy any players. And remember, we just sold 6 players without replacing them...

What can a new owner or investor do?
We normally associate an owner helping a club by the owner more or less giving the club money. This is called a capital contribution in this context. A capital contribution by a shareholder does not impact our results (correct me if I am wrong). It provides cash to the balance sheet, but at least normally it also increases the "equity" item on the debt side. So it doesn't result in a profit. So in brief, if a new owner comes in and gives us 150m, it doesn't help us.

We could pay of the debt of course -- and lower our financing costs, but its not a major bang for the buck so to speak in this context. Our debt totals app 680m and our finance costs amounts to 86m. If a new owner comes in and gifts us 680m, we save 86m per year. That might give us -- a little -- wiggle room so that we could afford perhaps the odd signing, but only if my calculations above are overstated. If they are correct, and we sell the players listed above, we would have to save another 30m before we could spend a penny on a new player.

What are others doing? The one thing that helps is of course if an owner comes in and gifts us money in the form of a "sponsorship". That is genuine revenue. If a new owner comes in and sponsors us with 150m -- we name the stadium Ineos Old Trafford or Qatar Old Trafford or whatever -- it instantly improves our results with 150m. If we do the above sales of players and get 150m extra in sponsor money -- it instantly means that we improve our Football Earnings with 252m, and since we only are minus with 213m, it means that we could incur costs of 39m.

Another way is of course to for example sell future TV rights, that is what Barca have done.

So what does -- for example -- 40m in "available Football Earnings" buy you? Just look at the schedule of players above and their costs. If we free up 40m in Football Earnings, we can incur 40m in additional Relevant Expenses. I.e. amortization plus salary for a player. A Lissandro Martinez is 18m in Relevant Expenses. A Jadon Sancho is 35m.

4. The Squad Cost Rule
TBC -- I don't think this rule will impact us at all as long as we comply with the Football Earnings Rule. And its getting late...
Great job. Very interesting.

Well, according to your overview Man Utds revenue will be lower in 2024 than in 2019. Similar level as in 2017. No growth for 7 years will hit any business hard. Even more so a business accustomed to rather high growth in the years prior.

I’m also not sure about those wage numbers. You mention Jones, Ronaldo and de Gea. But I think there is quite a few that is likely to leave (Bailly, Henderson, Telles, Wan-Bissaka, Williams, Tuanzebe, Elanga, Pellistri, Donny). (Rangnick probably also inflated the cost of the business in 2022.)

And what is with the growth in the «other expenses»? All growth in interest cost? Still seems high. Should interest cost, related to Glazer buying Man Utd, even be considered a «relevant expense» in this case?

So, in summary, I think a new owner will remove the debt (and also the interest cost) and that the wage cost will be lower than in your summary. If so, what would seperate us from for instance Liverpool is amortisations that would be what? £40-50 mill higher?
 
Last edited:

Water Melon

before it dries out, eh
Joined
Jan 22, 2014
Messages
5,032
Location
garden bed
I have tried to look at this. Obviously it is very hypothetical. But perhaps we can come to some conclusions.

1. First of all, what limits how much we can spend on transfers? We have to comply with the following rules:
a. The Net Equity Rule
b. The No Overdue Payments Rule
c. The Football Earnings Rule
d. The Squad Cost Rule

a. and b. are formalities for us.

Under the Football Earnings Rule, our Relevant Income minus Relevant Expense plus Relevant Investments may not be lower than minus 60m over a period of three years. Violating this rule once might not be the biggest deal. But after that you will get into a lot of problems. First of all, your losses may not be more than minus 10m over the three year period (instead of minus 60). And getting banned from UEFA Competitions should come fairly fast if you don't get the financials in order.

Under the Squad Equity Rule, basically, our yearly costs for acquisitions (amortizations) and salaries cannot exceed 90% of our relevant revenue for 23/24, 80% for 24/25 and then finally -- after the break-in period -- 70% yearly after that.

2. What does the Football Earnings Rule mean in practice for our spending if we get a new owner? How much can we spend in the summer of 2023?
General
After the 23/24 season, our result for 22/23 and 23/24 (normally its counted over 3 years, but as a transitional rule it will be counted over 2 years the first time, see rule 104.01 of the FSR) and may not be less than minus 60m (EUR). Remember, in the summer of 2023 we can spend more or less as much as we want, but if we overspend we will into trouble in the summer of 2024. There is nothing preventing a Club from making bad decisions, and you will pay for them after a year. So what we can spend next summer, will depend on a forecast for what our Earnings will be after the 23/24 season.

It is great for us that the Annus Horribilis of 21/22 will not be included (didn't know that when I wrote the OP)!! Obviously we don't know what the results will be for 22/23 and 23/24, but lets speculate. Any input on my guestimates are greatly appreciated!

Speculation on the Income for this and next season
This is how our income was divided for the last three years:
22/2121/2020/19
Sponsorship147,881140,209182,709
Retail, merchandising, licensing revenue109,93991,99696,335
Commercial257,820232,205279,044
Domestic competitions140,629174,683
115,415​
European competitions67,47773,82716,836
Other6,7416,3057,952
Broadcasting214,847254,815140,203
Matchday110,5347,09789,794
583,201494,117509,041

What will change for this season? We should lose 50m in TV money from European Competitions, right? There is a lot of inflation out there, we made a lot of money with our summer tour (our sponsorship income for July, August and September was 23m more in 22' than 21' largely due to the tour). Retail and merch were up with 5.3%. Gate was basically unchanged (except that we hosted the opening of the Womens Euros and a Rugby Final). I think that our revenue for 22/23 will be more or less unchanged compared to 21/20. Will we finish top 4 this season? That will have a big impact for our income for 23/24 of course.

Lets first look at what we can spend if the new owner does not do anything, i.e. pay of debt or becomes a sponsor of the team, and under the following assumptions:
*We do not make the CL this season
*We do not sell any players with profit (see my post above)
23/2422/2322/2121/2020/19
Sponsorship (+25m from Tour, 5% growth)181 525172 881147 881140 209182 709
Retail merchandising licensing revenue (+5%)121 208115 436109 93991 99696 335
Commercial302 733288 317257 820232 205279 044
Domestic competitions150 000150 000140 629174 683115 415
European competitions16 00016 00067 47773 82716 836
Other7 0007 0006 7416 3057 952
Broadcasting173 000173 000214 847254 815140 203
Matchday115 000115 000110 5347 09789 794
590 733576 317583 201494 117509 041

Speculation on our expenses for this and next season
So what will happen to our costs? A few things are clear from known changes and the Q1 report.
*We will not pay Ronaldo's 27m salary and we will not pay Ole's severance package of 24m, that is 50m in saved expenses.
*Our salaries are down 7% since we missed the CL
*Our Tour cost us 11m
*Amortization is up with 14%
*We made a one-off currency loss on foregin debt of 22m
*For the 23/24 season, the amortization of our signing of Fred and Dalot are off the books (14m in total)
*For the 23/24 season, DDG will get a lower wage (say we save 5m per year) and Phil Jones are off the books (3.9m)

This would roughly give us the following Operating Expenses
Operating Expense23/2422/2322/2121/2020/19
Employee benefit expense
326 351​
330 251​
384 141​
322 600​
284 029​
Amortization–intangible assets
158 667​
172 667​
151 462​
124 398​
126 756​
Other
167 917​
189 917​
156 917​
91 426​
111 419​
Total
652 935​
692 835​
692 520​
538 424​
522 204​

When calculating our results in accordance with the Football Earnings Rule, we get the following results:


Do you guys think this make sense? Basically, in 21/22 we made a 112m loss in this regard. Since then, we will lose about 50m in TV money from the CL while saving Ole's severance and Ronaldo's salary (this basically makes up for the lost CL money). In addition, finance costs are up a lot due to increased interest rates and especially the pound losing against the USD (one time loss of 22m). In addition Amortization is up a lot, and we don't count on and players' sold in this scenario.

This indicates that we are in a REALLY BAD STATE (!).

Under these assumptions, what could we spend on transfers in the summer of 2023? Simple answer is -- not -- nothing, its less than nothing. We would have to make major savings next season. If we make a loss of 159m this season and 114m next season, we would have an aggregate loss of 273m while the accepted loss only is 60m. That would mean that we would have to make massive savings. It could probably not be done during the span of a year without owners intervening, but on average its about 100m per season.

Are the above numbers correct? Its the first time I apply an complex set of new rules and I am not an accountant, but a lawyer. Lawyers are notoriously bad with figures. I could definitely make mistakes, and they could have a large impact. In addition, a lot of the above are based on estimates. But while those can be wrong, they won't be wrong by this much. Give or take 50m maybe, but that is nothing, we would still have to save 110m. And I could just as well err on the wrong side of caution here. Interest rates are going up, the pound is tanking. Can sponsors pull out if we miss the CL again? Etc. And I mean, the Football Earnings Rule is meant to ensure that clubs don't overspend. Last season we made a 150m loss before taxes, while playing in the CL. Then in the summer we spent 240m on transfers. I recon that it shouldn't be surprising that our financials don't look great.

3. What can we do to improve our Football Earnings?
A little context
Our new acquisitions cost a lot of money. For example a Casemiro cost us 30m per year in Amortization and Salary, Jadon Sancho cost us 35m per year, Antony is 26m, Martinez cost us 18m a year. So in reality, we are living on three guys like Sancho and Antony above our means. 100m a year is a lot, but we have some really expensive players.

Can we sell players? Does it help?
So a player impact our financials in three senses. First of all, the right to register each player is an intangible asset in our Balance Sheet. The value of the asset is as a starting point the same as what we paid for the player. If we sell a player, it will result in a profit in our accounts if the transfer fee is higher than the value at which the player is recorded in our balance sheet at any given time. Second of all, the value of that asset is amortized yearly in a straight line over the players contract. Thirdly, a player's salary is of course a cost. This is a break down of first, the remaining bookvalue all our players have, and second the total yearly cost for the player (i.e. amortization plus salary):

So what does this mean in practice? Take Harry Maguire as an example. If we sell him for 25m this summer of 2023, it means that we add 25m as cash (or as a receivable if the payment is deferred). At the same time, we delet his value in the balance sheet of 26.6m. The result is of course impacted with a minus 1.66m loss. At the same time, we don't have to pay his salaries anymore and we don't have to amortize his value any longer, so that is a yearly saving of app. 21.8m. All in all, selling Maguire for 25m in the summer of 2023 reduces our loss of app. 20m for the 23/24 season.

There is a lot of talks about how we must sell several players next summer. Its very hard to estimate what we can get for them. But hey, that haven't stopped us before. But I am going to be very modest in my estimated returns, since we just historically always have had a harder time selling players than we expected beforehand. I mean we tried to sell AWB last summer, and were offered what 10-15m for him? Has anything changed. Nah, not really. And its a fact that the biggest names goes for insane numbers, but then there is a huuuuge drop in returns for players who have tackled off a bit and aren't in the spotlight. Overall, I think I am more likely to err on the side of being too optimistic below -- in total. Sure someone might be undervalued, but if there is one name there we can't sell, it more than makes up for it probably.
Harry Magure -- Sold for 25m
Dean Henderson -- Sold for 20m
Donny van de Beek -- Sold for 12m
Aaron Wan-Bissaka -- Sold for 10m
Fred -- Sold for 7.5m
Pellestri -- Sold for 5m

If we could pull of all these sales, it would improve our earnings with 102m for 23/24. That basically puts us in black for that season. But remember, we are probably still at least 125m minus from this season (my forecast was minus 158m). The accepted deviance is minus 60m, so it seems like we must improve our results with at least another 60-100m for 23/24 -- just to break even. Let alone be able to buy any players. And remember, we just sold 6 players without replacing them...

What can a new owner or investor do?
We normally associate an owner helping a club by the owner more or less giving the club money. This is called a capital contribution in this context. A capital contribution by a shareholder does not impact our results (correct me if I am wrong). It provides cash to the balance sheet, but at least normally it also increases the "equity" item on the debt side. So it doesn't result in a profit. So in brief, if a new owner comes in and gives us 150m, it doesn't help us.

We could pay of the debt of course -- and lower our financing costs, but its not a major bang for the buck so to speak in this context. Our debt totals app 680m and our finance costs amounts to 86m. If a new owner comes in and gifts us 680m, we save 86m per year. That might give us -- a little -- wiggle room so that we could afford perhaps the odd signing, but only if my calculations above are overstated. If they are correct, and we sell the players listed above, we would have to save another 30m before we could spend a penny on a new player.

What are others doing? The one thing that helps is of course if an owner comes in and gifts us money in the form of a "sponsorship". That is genuine revenue. If a new owner comes in and sponsors us with 150m -- we name the stadium Ineos Old Trafford or Qatar Old Trafford or whatever -- it instantly improves our results with 150m. If we do the above sales of players and get 150m extra in sponsor money -- it instantly means that we improve our Football Earnings with 252m, and since we only are minus with 213m, it means that we could incur costs of 39m.

Another way is of course to for example sell future TV rights, that is what Barca have done.

So what does -- for example -- 40m in "available Football Earnings" buy you? Just look at the schedule of players above and their costs. If we free up 40m in Football Earnings, we can incur 40m in additional Relevant Expenses. I.e. amortization plus salary for a player. A Lissandro Martinez is 18m in Relevant Expenses. A Jadon Sancho is 35m.

4. The Squad Cost Rule
TBC -- I don't think this rule will impact us at all as long as we comply with the Football Earnings Rule. And its getting late...
Very informative, thanks a lot! You deserve a different tagline now. Something related to finances. The mods will definitely appreciate your expertise.
 
Last edited:

Adam-Utd

Part of first caf team to complete Destiny raid
Joined
Sep 10, 2010
Messages
39,347
@Messier1994

great job and very interesting.

I think this helps set the scene for us really - no wonder the glazers have chosen now to sell.

The club truly is at a very sticky point otherwise.

In a way though I think going back to basics with transfers and wages might not be such a bad thing. we’ve thrown cash around like it would never ran out for far too long, trying to cover holes/weaknesses instead of actually fixing them.
 

Flanders Devil

New Member
Newbie
Joined
Aug 23, 2018
Messages
399
This is fantastic @Messier1994

I wish I had something insightful to add, but I don't think I'd anything of value beyond what you've done.

I suppose what it shows for me, that I probably previously didn't appreciate as much the downside, is the value of getting your transfers right and the scatter gun approach of bettering on multiple players and hoping to get it right, doesn't really work.

That and your comment about youth transfers being viewed as 'investment' in that formula, there seems to be a Chelsea shaped loophole there...
 

Niemans

Full Member
Joined
Aug 16, 2021
Messages
1,229
Supports
Barcelona, Celta de Vigo
I have tried to look at this. Obviously it is very hypothetical. But perhaps we can come to some conclusions.

1. First of all, what limits how much we can spend on transfers? We have to comply with the following rules:
a. The Net Equity Rule
b. The No Overdue Payments Rule
c. The Football Earnings Rule
d. The Squad Cost Rule

a. and b. are formalities for us.

Under the Football Earnings Rule, our Relevant Income minus Relevant Expense plus Relevant Investments may not be lower than minus 60m over a period of three years. Violating this rule once might not be the biggest deal. But after that you will get into a lot of problems. First of all, your losses may not be more than minus 10m over the three year period (instead of minus 60). And getting banned from UEFA Competitions should come fairly fast if you don't get the financials in order.

Under the Squad Equity Rule, basically, our yearly costs for acquisitions (amortizations) and salaries cannot exceed 90% of our relevant revenue for 23/24, 80% for 24/25 and then finally -- after the break-in period -- 70% yearly after that.

2. What does the Football Earnings Rule mean in practice for our spending if we get a new owner? How much can we spend in the summer of 2023?
General
After the 23/24 season, our result for 22/23 and 23/24 (normally its counted over 3 years, but as a transitional rule it will be counted over 2 years the first time, see rule 104.01 of the FSR) and may not be less than minus 60m (EUR). Remember, in the summer of 2023 we can spend more or less as much as we want, but if we overspend we will into trouble in the summer of 2024. There is nothing preventing a Club from making bad decisions, and you will pay for them after a year. So what we can spend next summer, will depend on a forecast for what our Earnings will be after the 23/24 season.

It is great for us that the Annus Horribilis of 21/22 will not be included (didn't know that when I wrote the OP)!! Obviously we don't know what the results will be for 22/23 and 23/24, but lets speculate. Any input on my guestimates are greatly appreciated!

Speculation on the Income for this and next season
This is how our income was divided for the last three years:
22/2121/2020/19
Sponsorship147,881140,209182,709
Retail, merchandising, licensing revenue109,93991,99696,335
Commercial257,820232,205279,044
Domestic competitions140,629174,683
115,415​
European competitions67,47773,82716,836
Other6,7416,3057,952
Broadcasting214,847254,815140,203
Matchday110,5347,09789,794
583,201494,117509,041

What will change for this season? We should lose 50m in TV money from European Competitions, right? There is a lot of inflation out there, we made a lot of money with our summer tour (our sponsorship income for July, August and September was 23m more in 22' than 21' largely due to the tour). Retail and merch were up with 5.3%. Gate was basically unchanged (except that we hosted the opening of the Womens Euros and a Rugby Final). I think that our revenue for 22/23 will be more or less unchanged compared to 21/20. Will we finish top 4 this season? That will have a big impact for our income for 23/24 of course.

Lets first look at what we can spend if the new owner does not do anything, i.e. pay of debt or becomes a sponsor of the team, and under the following assumptions:
*We do not make the CL this season
*We do not sell any players with profit (see my post above)
23/2422/2322/2121/2020/19
Sponsorship (+25m from Tour, 5% growth)181 525172 881147 881140 209182 709
Retail merchandising licensing revenue (+5%)121 208115 436109 93991 99696 335
Commercial302 733288 317257 820232 205279 044
Domestic competitions150 000150 000140 629174 683115 415
European competitions16 00016 00067 47773 82716 836
Other7 0007 0006 7416 3057 952
Broadcasting173 000173 000214 847254 815140 203
Matchday115 000115 000110 5347 09789 794
590 733576 317583 201494 117509 041

Speculation on our expenses for this and next season
So what will happen to our costs? A few things are clear from known changes and the Q1 report.
*We will not pay Ronaldo's 27m salary and we will not pay Ole's severance package of 24m, that is 50m in saved expenses.
*Our salaries are down 7% since we missed the CL
*Our Tour cost us 11m
*Amortization is up with 14%
*We made a one-off currency loss on foregin debt of 22m
*For the 23/24 season, the amortization of our signing of Fred and Dalot are off the books (14m in total)
*For the 23/24 season, DDG will get a lower wage (say we save 5m per year) and Phil Jones are off the books (3.9m)

This would roughly give us the following Operating Expenses
Operating Expense23/2422/2322/2121/2020/19
Employee benefit expense
326 351​
330 251​
384 141​
322 600​
284 029​
Amortization–intangible assets
158 667​
172 667​
151 462​
124 398​
126 756​
Other
167 917​
189 917​
156 917​
91 426​
111 419​
Total
652 935​
692 835​
692 520​
538 424​
522 204​

When calculating our results in accordance with the Football Earnings Rule, we get the following results:


Do you guys think this make sense? Basically, in 21/22 we made a 112m loss in this regard. Since then, we will lose about 50m in TV money from the CL while saving Ole's severance and Ronaldo's salary (this basically makes up for the lost CL money). In addition, finance costs are up a lot due to increased interest rates and especially the pound losing against the USD (one time loss of 22m). In addition Amortization is up a lot, and we don't count on and players' sold in this scenario.

This indicates that we are in a REALLY BAD STATE (!).

Under these assumptions, what could we spend on transfers in the summer of 2023? Simple answer is -- not -- nothing, its less than nothing. We would have to make major savings next season. If we make a loss of 159m this season and 114m next season, we would have an aggregate loss of 273m while the accepted loss only is 60m. That would mean that we would have to make massive savings. It could probably not be done during the span of a year without owners intervening, but on average its about 100m per season.

Are the above numbers correct? Its the first time I apply an complex set of new rules and I am not an accountant, but a lawyer. Lawyers are notoriously bad with figures. I could definitely make mistakes, and they could have a large impact. In addition, a lot of the above are based on estimates. But while those can be wrong, they won't be wrong by this much. Give or take 50m maybe, but that is nothing, we would still have to save 110m. And I could just as well err on the wrong side of caution here. Interest rates are going up, the pound is tanking. Can sponsors pull out if we miss the CL again? Etc. And I mean, the Football Earnings Rule is meant to ensure that clubs don't overspend. Last season we made a 150m loss before taxes, while playing in the CL. Then in the summer we spent 240m on transfers. I recon that it shouldn't be surprising that our financials don't look great.

3. What can we do to improve our Football Earnings?
A little context
Our new acquisitions cost a lot of money. For example a Casemiro cost us 30m per year in Amortization and Salary, Jadon Sancho cost us 35m per year, Antony is 26m, Martinez cost us 18m a year. So in reality, we are living on three guys like Sancho and Antony above our means. 100m a year is a lot, but we have some really expensive players.

Can we sell players? Does it help?
So a player impact our financials in three senses. First of all, the right to register each player is an intangible asset in our Balance Sheet. The value of the asset is as a starting point the same as what we paid for the player. If we sell a player, it will result in a profit in our accounts if the transfer fee is higher than the value at which the player is recorded in our balance sheet at any given time. Second of all, the value of that asset is amortized yearly in a straight line over the players contract. Thirdly, a player's salary is of course a cost. This is a break down of first, the remaining bookvalue all our players have, and second the total yearly cost for the player (i.e. amortization plus salary):

So what does this mean in practice? Take Harry Maguire as an example. If we sell him for 25m this summer of 2023, it means that we add 25m as cash (or as a receivable if the payment is deferred). At the same time, we delet his value in the balance sheet of 26.6m. The result is of course impacted with a minus 1.66m loss. At the same time, we don't have to pay his salaries anymore and we don't have to amortize his value any longer, so that is a yearly saving of app. 21.8m. All in all, selling Maguire for 25m in the summer of 2023 reduces our loss of app. 20m for the 23/24 season.

There is a lot of talks about how we must sell several players next summer. Its very hard to estimate what we can get for them. But hey, that haven't stopped us before. But I am going to be very modest in my estimated returns, since we just historically always have had a harder time selling players than we expected beforehand. I mean we tried to sell AWB last summer, and were offered what 10-15m for him? Has anything changed. Nah, not really. And its a fact that the biggest names goes for insane numbers, but then there is a huuuuge drop in returns for players who have tackled off a bit and aren't in the spotlight. Overall, I think I am more likely to err on the side of being too optimistic below -- in total. Sure someone might be undervalued, but if there is one name there we can't sell, it more than makes up for it probably.
Harry Magure -- Sold for 25m
Dean Henderson -- Sold for 20m
Donny van de Beek -- Sold for 12m
Aaron Wan-Bissaka -- Sold for 10m
Fred -- Sold for 7.5m
Pellestri -- Sold for 5m

If we could pull of all these sales, it would improve our earnings with 102m for 23/24. That basically puts us in black for that season. But remember, we are probably still at least 125m minus from this season (my forecast was minus 158m). The accepted deviance is minus 60m, so it seems like we must improve our results with at least another 60-100m for 23/24 -- just to break even. Let alone be able to buy any players. And remember, we just sold 6 players without replacing them...

What can a new owner or investor do?
We normally associate an owner helping a club by the owner more or less giving the club money. This is called a capital contribution in this context. A capital contribution by a shareholder does not impact our results (correct me if I am wrong). It provides cash to the balance sheet, but at least normally it also increases the "equity" item on the debt side. So it doesn't result in a profit. So in brief, if a new owner comes in and gives us 150m, it doesn't help us.

We could pay of the debt of course -- and lower our financing costs, but its not a major bang for the buck so to speak in this context. Our debt totals app 680m and our finance costs amounts to 86m. If a new owner comes in and gifts us 680m, we save 86m per year. That might give us -- a little -- wiggle room so that we could afford perhaps the odd signing, but only if my calculations above are overstated. If they are correct, and we sell the players listed above, we would have to save another 30m before we could spend a penny on a new player.

What are others doing? The one thing that helps is of course if an owner comes in and gifts us money in the form of a "sponsorship". That is genuine revenue. If a new owner comes in and sponsors us with 150m -- we name the stadium Ineos Old Trafford or Qatar Old Trafford or whatever -- it instantly improves our results with 150m. If we do the above sales of players and get 150m extra in sponsor money -- it instantly means that we improve our Football Earnings with 252m, and since we only are minus with 213m, it means that we could incur costs of 39m.

Another way is of course to for example sell future TV rights, that is what Barca have done.

So what does -- for example -- 40m in "available Football Earnings" buy you? Just look at the schedule of players above and their costs. If we free up 40m in Football Earnings, we can incur 40m in additional Relevant Expenses. I.e. amortization plus salary for a player. A Lissandro Martinez is 18m in Relevant Expenses. A Jadon Sancho is 35m.

4. The Squad Cost Rule
TBC -- I don't think this rule will impact us at all as long as we comply with the Football Earnings Rule. And its getting late...
1- The solution that United has is to increase income with sponsorships and champions league mainly.

2 - Sell expendable players with high salaries and amortizations and sign players who finish contract. And all this without losing competitive capacity to enter the Champions League.
 

Traub

Full Member
Joined
Jun 26, 2009
Messages
9,794
I don’t know what job I can offer you, but whatever it is you’re hired!
 

NFM

Full Member
Joined
Nov 25, 2015
Messages
307
Sign a deal with developer to knock down OT and replace with 100,000 seater stadium.
The investment ( positive) in the balance sheet would be massive, the repayment/interest could be deferred.
Nothing to do with players, just get the numbers right. Its a game , just not football.
 
Joined
Mar 26, 2022
Messages
335
As someone has mentioned above if we have to get back to paying sensible wages, promoting youth and actually coaching players to be better that is no bad thing. We have a good manager in place now and hopefully we wise up on the contracts. Undoubtedly some of our underperforming high earners will be hard to shift and we might take a haircut or two to get some players off the books but if the new owners come in with a sensible football business head on none of this is impossible. No more signing 35 year old strikers on huge wages as stop gaps. Plan sensibly, pay sensibly and hopefully with new owners wiping out the debt and running the club well we can improve on and off the pitch.
 

NFM

Full Member
Joined
Nov 25, 2015
Messages
307
Sign a deal with developer to knock down OT and replace with 100,000 seater stadium.
The investment ( positive) in the balance sheet would be massive, the repayment/interest could be deferred.
Nothing to do with players, just get the numbers right. Its a game , just not football.
Just seen the latest review of the Q1 accounts by swissramble. It confirms the general picture painted by Messier.
Having debt denominated in currency different to income was always a risk. In times of 'free money' the Glazers could get away with it. Now the Fed is hiking rates and USD is strengthening against almost every other currency its game over.
This is why they want USD denominated sale, and fast.
 

andersj

Nick Powell Expert
Joined
Aug 7, 2004
Messages
3,699
Location
Copenhagen
I have tried to look at this. Obviously it is very hypothetical. But perhaps we can come to some conclusions.

1. First of all, what limits how much we can spend on transfers? We have to comply with the following rules:
a. The Net Equity Rule
b. The No Overdue Payments Rule
c. The Football Earnings Rule
d. The Squad Cost Rule

a. and b. are formalities for us.

Under the Football Earnings Rule, our Relevant Income minus Relevant Expense plus Relevant Investments may not be lower than minus 60m over a period of three years. Violating this rule once might not be the biggest deal. But after that you will get into a lot of problems. First of all, your losses may not be more than minus 10m over the three year period (instead of minus 60). And getting banned from UEFA Competitions should come fairly fast if you don't get the financials in order.

Under the Squad Equity Rule, basically, our yearly costs for acquisitions (amortizations) and salaries cannot exceed 90% of our relevant revenue for 23/24, 80% for 24/25 and then finally -- after the break-in period -- 70% yearly after that.

2. What does the Football Earnings Rule mean in practice for our spending if we get a new owner? How much can we spend in the summer of 2023?
General
After the 23/24 season, our result for 22/23 and 23/24 (normally its counted over 3 years, but as a transitional rule it will be counted over 2 years the first time, see rule 104.01 of the FSR) and may not be less than minus 60m (EUR). Remember, in the summer of 2023 we can spend more or less as much as we want, but if we overspend we will into trouble in the summer of 2024. There is nothing preventing a Club from making bad decisions, and you will pay for them after a year. So what we can spend next summer, will depend on a forecast for what our Earnings will be after the 23/24 season.

It is great for us that the Annus Horribilis of 21/22 will not be included (didn't know that when I wrote the OP)!! Obviously we don't know what the results will be for 22/23 and 23/24, but lets speculate. Any input on my guestimates are greatly appreciated!

Speculation on the Income for this and next season
This is how our income was divided for the last three years:
22/2121/2020/19
Sponsorship147,881140,209182,709
Retail, merchandising, licensing revenue109,93991,99696,335
Commercial257,820232,205279,044
Domestic competitions140,629174,683
115,415​
European competitions67,47773,82716,836
Other6,7416,3057,952
Broadcasting214,847254,815140,203
Matchday110,5347,09789,794
583,201494,117509,041

What will change for this season? We should lose 50m in TV money from European Competitions, right? There is a lot of inflation out there, we made a lot of money with our summer tour (our sponsorship income for July, August and September was 23m more in 22' than 21' largely due to the tour). Retail and merch were up with 5.3%. Gate was basically unchanged (except that we hosted the opening of the Womens Euros and a Rugby Final). I think that our revenue for 22/23 will be more or less unchanged compared to 21/20. Will we finish top 4 this season? That will have a big impact for our income for 23/24 of course.

Lets first look at what we can spend if the new owner does not do anything, i.e. pay of debt or becomes a sponsor of the team, and under the following assumptions:
*We do not make the CL this season
*We do not sell any players with profit (see my post above)
23/2422/2322/2121/2020/19
Sponsorship (+25m from Tour, 5% growth)181 525172 881147 881140 209182 709
Retail merchandising licensing revenue (+5%)121 208115 436109 93991 99696 335
Commercial302 733288 317257 820232 205279 044
Domestic competitions150 000150 000140 629174 683115 415
European competitions16 00016 00067 47773 82716 836
Other7 0007 0006 7416 3057 952
Broadcasting173 000173 000214 847254 815140 203
Matchday115 000115 000110 5347 09789 794
590 733576 317583 201494 117509 041

Speculation on our expenses for this and next season
So what will happen to our costs? A few things are clear from known changes and the Q1 report.
*We will not pay Ronaldo's 27m salary and we will not pay Ole's severance package of 24m, that is 50m in saved expenses.
*Our salaries are down 7% since we missed the CL
*Our Tour cost us 11m
*Amortization is up with 14%
*We made a one-off currency loss on foregin debt of 22m
*For the 23/24 season, the amortization of our signing of Fred and Dalot are off the books (14m in total)
*For the 23/24 season, DDG will get a lower wage (say we save 5m per year) and Phil Jones are off the books (3.9m)

This would roughly give us the following Operating Expenses
Operating Expense23/2422/2322/2121/2020/19
Employee benefit expense
326 351​
330 251​
384 141​
322 600​
284 029​
Amortization–intangible assets
158 667​
172 667​
151 462​
124 398​
126 756​
Other
167 917​
189 917​
156 917​
91 426​
111 419​
Total
652 935​
692 835​
692 520​
538 424​
522 204​

When calculating our results in accordance with the Football Earnings Rule, we get the following results:


Do you guys think this make sense? Basically, in 21/22 we made a 112m loss in this regard. Since then, we will lose about 50m in TV money from the CL while saving Ole's severance and Ronaldo's salary (this basically makes up for the lost CL money). In addition, finance costs are up a lot due to increased interest rates and especially the pound losing against the USD (one time loss of 22m). In addition Amortization is up a lot, and we don't count on and players' sold in this scenario.

This indicates that we are in a REALLY BAD STATE (!).

Under these assumptions, what could we spend on transfers in the summer of 2023? Simple answer is -- not -- nothing, its less than nothing. We would have to make major savings next season. If we make a loss of 159m this season and 114m next season, we would have an aggregate loss of 273m while the accepted loss only is 60m. That would mean that we would have to make massive savings. It could probably not be done during the span of a year without owners intervening, but on average its about 100m per season.

Are the above numbers correct? Its the first time I apply an complex set of new rules and I am not an accountant, but a lawyer. Lawyers are notoriously bad with figures. I could definitely make mistakes, and they could have a large impact. In addition, a lot of the above are based on estimates. But while those can be wrong, they won't be wrong by this much. Give or take 50m maybe, but that is nothing, we would still have to save 110m. And I could just as well err on the wrong side of caution here. Interest rates are going up, the pound is tanking. Can sponsors pull out if we miss the CL again? Etc. And I mean, the Football Earnings Rule is meant to ensure that clubs don't overspend. Last season we made a 150m loss before taxes, while playing in the CL. Then in the summer we spent 240m on transfers. I recon that it shouldn't be surprising that our financials don't look great.

3. What can we do to improve our Football Earnings?
A little context
Our new acquisitions cost a lot of money. For example a Casemiro cost us 30m per year in Amortization and Salary, Jadon Sancho cost us 35m per year, Antony is 26m, Martinez cost us 18m a year. So in reality, we are living on three guys like Sancho and Antony above our means. 100m a year is a lot, but we have some really expensive players.

Can we sell players? Does it help?
So a player impact our financials in three senses. First of all, the right to register each player is an intangible asset in our Balance Sheet. The value of the asset is as a starting point the same as what we paid for the player. If we sell a player, it will result in a profit in our accounts if the transfer fee is higher than the value at which the player is recorded in our balance sheet at any given time. Second of all, the value of that asset is amortized yearly in a straight line over the players contract. Thirdly, a player's salary is of course a cost. This is a break down of first, the remaining bookvalue all our players have, and second the total yearly cost for the player (i.e. amortization plus salary):

So what does this mean in practice? Take Harry Maguire as an example. If we sell him for 25m this summer of 2023, it means that we add 25m as cash (or as a receivable if the payment is deferred). At the same time, we delet his value in the balance sheet of 26.6m. The result is of course impacted with a minus 1.66m loss. At the same time, we don't have to pay his salaries anymore and we don't have to amortize his value any longer, so that is a yearly saving of app. 21.8m. All in all, selling Maguire for 25m in the summer of 2023 reduces our loss of app. 20m for the 23/24 season.

There is a lot of talks about how we must sell several players next summer. Its very hard to estimate what we can get for them. But hey, that haven't stopped us before. But I am going to be very modest in my estimated returns, since we just historically always have had a harder time selling players than we expected beforehand. I mean we tried to sell AWB last summer, and were offered what 10-15m for him? Has anything changed. Nah, not really. And its a fact that the biggest names goes for insane numbers, but then there is a huuuuge drop in returns for players who have tackled off a bit and aren't in the spotlight. Overall, I think I am more likely to err on the side of being too optimistic below -- in total. Sure someone might be undervalued, but if there is one name there we can't sell, it more than makes up for it probably.
Harry Magure -- Sold for 25m
Dean Henderson -- Sold for 20m
Donny van de Beek -- Sold for 12m
Aaron Wan-Bissaka -- Sold for 10m
Fred -- Sold for 7.5m
Pellestri -- Sold for 5m

If we could pull of all these sales, it would improve our earnings with 102m for 23/24. That basically puts us in black for that season. But remember, we are probably still at least 125m minus from this season (my forecast was minus 158m). The accepted deviance is minus 60m, so it seems like we must improve our results with at least another 60-100m for 23/24 -- just to break even. Let alone be able to buy any players. And remember, we just sold 6 players without replacing them...

What can a new owner or investor do?
We normally associate an owner helping a club by the owner more or less giving the club money. This is called a capital contribution in this context. A capital contribution by a shareholder does not impact our results (correct me if I am wrong). It provides cash to the balance sheet, but at least normally it also increases the "equity" item on the debt side. So it doesn't result in a profit. So in brief, if a new owner comes in and gives us 150m, it doesn't help us.

We could pay of the debt of course -- and lower our financing costs, but its not a major bang for the buck so to speak in this context. Our debt totals app 680m and our finance costs amounts to 86m. If a new owner comes in and gifts us 680m, we save 86m per year. That might give us -- a little -- wiggle room so that we could afford perhaps the odd signing, but only if my calculations above are overstated. If they are correct, and we sell the players listed above, we would have to save another 30m before we could spend a penny on a new player.

What are others doing? The one thing that helps is of course if an owner comes in and gifts us money in the form of a "sponsorship". That is genuine revenue. If a new owner comes in and sponsors us with 150m -- we name the stadium Ineos Old Trafford or Qatar Old Trafford or whatever -- it instantly improves our results with 150m. If we do the above sales of players and get 150m extra in sponsor money -- it instantly means that we improve our Football Earnings with 252m, and since we only are minus with 213m, it means that we could incur costs of 39m.

Another way is of course to for example sell future TV rights, that is what Barca have done.

So what does -- for example -- 40m in "available Football Earnings" buy you? Just look at the schedule of players above and their costs. If we free up 40m in Football Earnings, we can incur 40m in additional Relevant Expenses. I.e. amortization plus salary for a player. A Lissandro Martinez is 18m in Relevant Expenses. A Jadon Sancho is 35m.

4. The Squad Cost Rule
TBC -- I don't think this rule will impact us at all as long as we comply with the Football Earnings Rule. And its getting late...
How did you calculate «other expenses» and «finance cost»? Both figures looks inflated.

Historically, other expenses have been approx £100 milll. It is hard to understand how/why they would rise to £190 mill considering the nature of expenses.

Regarding «finance cost», that I now see is not included in «other expenses», £90 mill seems way too high. The debt of the club is approx £600 mill. Our interest is LIBOR3M + 1,5 %. That would equate to approx £35 mill.

These two items could easily be £155 mill lower per year. With a new owner, removing the debt (not sure I agree that it is correct labelling such move «a gift» as it is not something they will pay for anyway), it would be even lower (maybe close to £200 mill).

And that is based on the assumption that the finance cost relating to capital structure is «a relevant expense». In summary, I actually you are close to £200 mill off, yearly, on just these two items.

I also think we are likely to remove even more from our wages than you suggest and also increase revenue more.
 

UpWithRivers

Full Member
Joined
Dec 30, 2013
Messages
2,866
None of this affects oil rich clubs. If we dont get an oil daddy we are fkd. Oil clubs can just sponsor themselves from other businesses to increases revenue and just spend on the club to increase assets. Plus a load of other devious methods, including just paying the fine. In theory it looks like clubs will be forced to be well run but unless it stops the oil clubs I see no point. Am I wrong?
 

C'est Moi Cantona

Full Member
Joined
Feb 15, 2014
Messages
7,608
So from this is it safe to conclude that the Glazers have extracted everything they can from the club, and have now literally hit the wall, and don't just want to get out, but have to get out?

This could add some weight to a few stories where bidders might be inclined to let them sweat for a while if they feel the asking price is inflated.
 

Messier1994

Deserves a tagline!
Joined
Oct 7, 2022
Messages
1,028
Many thanks guys!

How did you calculate «other expenses» and «finance cost»? Both figures looks inflated.

Historically, other expenses have been approx £100 milll. It is hard to understand how/why they would rise to £190 mill considering the nature of expenses.

Regarding «finance cost», that I now see is not included in «other expenses», £90 mill seems way too high. The debt of the club is approx £600 mill. Our interest is LIBOR3M + 1,5 %. That would equate to approx £35 mill.

These two items could easily be £155 mill lower per year. With a new owner, removing the debt (not sure I agree that it is correct labelling such move «a gift» as it is not something they will pay for anyway), it would be even lower (maybe close to £200 mill).

And that is based on the assumption that the finance cost relating to capital structure is «a relevant expense». In summary, I actually you are close to £200 mill off, yearly, on just these two items.

I also think we are likely to remove even more from our wages than you suggest and also increase revenue more.
Others expenses lumps together these posts:


I added two years, to get more context:
Operating Expense23/2422/2321/2220/2119/2018/1917/18
Employee benefit expense
326 351​
330 251​
384 141​
322 600​
284 029​
332 356​
295 935​
Amortization–intangible assets
158 667​
172 667​
151 462​
124 398​
126 756​
129 154​
138 380​
Other
167 917​
189 917​
156 917​
91 426​
111 419​
141 426​
129 691​
Total
652 935​
692 835​
692 520​
538 424​
522 204​
602 936​
564 006​

This is the underlying numbers for the two additional years.


The manual adjustments I have made is plus 22m for one time currency loss and plus 11m additional costs for the tour.

You are right that the finance cost is overstated in my forecast. The last five years it has been 24m, 25m, 27m, 36m and 85m. My calculation is based on the 85m figure of the Annual report for 21/22, Interest rates have gone up a ton of course like everyone knows and we have used our credit line this summer, so the debt is bigger, but that does not account for the full increase since most of our debt have fixed interest rates. In the AR for 21/22 its stated that the reason for this is "primarily due to an unfavorable swing foreign exchange rates".

I don't think Other expenses per se is overstated, but including 22m for unfavorable exchange rates as both an Other Expense as well as using last season's inflated financing cost attributed to the exchange rate is of course not correct.

What should the Financing Cost be? We know that the financing cost for 20/21 was 37.9m without currency impact. Interest rates have gone up and we have increased our borrowings. Interests are paid in dollar, which makes them more expensive. I think that should put the underlying financing cost at 40m. That also includes hedging etc. We already knows that we took a one time hit of 22m for the 1st quarter. So that makes the financing cost for 22/23 a total of 40m+22m=62m and for 23/24 a total of 40m, and we should also remove the 22m from other expenses for 22/23. That gives the following result:

I think this is counting a bit on the low side, since "Finance Income" -- i.e. profit on inter alia our hedging measures for the currency changes -- for 2024 is stated at 25m, but we don't account for any loss there. "Finance Income" was just 6m in 2021. At the same time, I let it stay there, since currencies tend to rebound. If the pound recovers against the USD, it helps us. All in all, 100m better than the previous version of the forecast. At the same time, I was aware of the risk for double counting some currencies loss (not to this extent though), but I let it be since there are reasons to expect some additional bad surprises in the books. The interest on our debt is tied to the economic state of the company, and increases additionally if we don't perform well (more risk, higher interst). And some sponsors can walk away if we don't make the CL two years in a row.

In any event, if we finish this season minus 108m, we still need to to post a profit of 48m next season (23/24) to not exceed the Accepted Deviance of minus 60m. If we miss CL next season, we wouldn't come close to that without taking massive measures, like selling of the players given as an example above, not replacing them nor bringing in any new players next summer.

Thanks for the input! Do you think the above adds up?

I like to underline that -- even if there are no additional misunderstandings or misinterpretations -- these guestimates could differ a lot from the actual result. We did post a minus 26m for Q1, so minus 108m for the full year does not seem unreasonable. This is my best guess at the moment, but its not an extremely through forecast. I haven't checked each individual quarter last season. Are there any other one-off costs? Could we expect more income? We will make money from players being at the WC, think its 100k per player. Did we make much money from playing the two games in Spain? How will we do in the Europa League? Will we go far in the cups? Could as well end up being like minus 60-70m. But unless there is any misunderstandings on my part it should not be much better than that -- with no improvements in sight for 23/24 as long as its business as usual and no CL play.
 
Last edited:

red thru&thru

Full Member
Joined
Mar 2, 2004
Messages
6,936
So from this is it safe to conclude that the Glazers have extracted everything they can from the club, and have now literally hit the wall, and don't just want to get out, but have to get out?

This could add some weight to a few stories where bidders might be inclined to let them sweat for a while if they feel the asking price is inflated.
This the worry from us supporters. How long will this drag on for?

Personally, I don't think they can afford to. Them not paying out dividends was a big turning point. Hopefully we'll hear some positive news soon.

@Messier1994 Thanks for all the input so far.

There is a lot of detail you have gone through. I will try and decipher it and see how I can try to summaries it all, and explain to people how a "partial sale" will not cut it, and we're truly messed without any BIG investment.
 

andersj

Nick Powell Expert
Joined
Aug 7, 2004
Messages
3,699
Location
Copenhagen
Many thanks guys!



Others expenses lumps together these posts:


I added two years, to get more context:
Operating Expense23/2422/2321/2220/2119/2018/1917/18
Employee benefit expense
326 351​
330 251​
384 141​
322 600​
284 029​
332 356​
295 935​
Amortization–intangible assets
158 667​
172 667​
151 462​
124 398​
126 756​
129 154​
138 380​
Other
167 917​
189 917​
156 917​
91 426​
111 419​
141 426​
129 691​
Total
652 935​
692 835​
692 520​
538 424​
522 204​
602 936​
564 006​

This is the underlying numbers for the two additional years.


The manual adjustments I have made is plus 22m for one time currency loss and plus 11m additional costs for the tour.

You are right that the finance cost is overstated in my forecast. The last five years it has been 24m, 25m, 27m, 36m and 85m. My calculation is based on the 85m figure of the Annual report for 21/22, Interest rates have gone up a ton of course like everyone knows and we have used our credit line this summer, so the debt is bigger, but that does not account for the full increase since most of our debt have fixed interest rates. In the AR for 21/22 its stated that the reason for this is "primarily due to an unfavorable swing foreign exchange rates".

I don't think Other expenses per se is overstated, but including 22m for unfavorable exchange rates as both an Other Expense as well as using last season's inflated financing cost attributed to the exchange rate is of course not correct.

What should the Financing Cost be? We know that the financing cost for 20/21 was 37.9m without currency impact. Interest rates have gone up and we have increased our borrowings. Interests are paid in dollar, which makes them more expensive. I think that should put the underlying financing cost at 40m. That also includes hedging etc. We already knows that we took a one time hit of 22m for the 1st quarter. So that makes the financing cost for 22/23 a total of 40m+22m=62m and for 23/24 a total of 40m, and we should also remove the 22m from other expenses for 22/23. That gives the following result:

I think this is counting a bit on the low side, since "Finance Income" -- i.e. profit on inter alia our hedging measures for the currency changes -- for 2024 is stated at 25m, but we don't account for any loss there. "Finance Income" was just 6m in 2021. At the same time, I let it stay there, since currencies tend to rebound. If the pound recovers against the USD, it helps us. All in all, 100m better than the previous version of the forecast. At the same time, I was aware of the risk for double counting some currencies loss (not to this extent though), but I let it be since there are reasons to expect some additional bad surprises in the books. The interest on our debt is tied to the economic state of the company, and increases additionally if we don't perform well (more risk, higher interst). And some sponsors can walk away if we don't make the CL two years in a row.

In any event, if we finish this season minus 108m, we still need to to post a profit of 48m next season (23/24) to not exceed the Accepted Deviance of minus 60m. If we miss CL next season, we wouldn't come close to that without taking massive measures, like selling of the players given as an example above, not replacing them nor bringing in any new players next summer.

Thanks for the input! Do you think the above adds up?

I like to underline that -- even if there are no additional misunderstandings or misinterpretations -- these guestimates could differ a lot from the actual result. We did post a minus 26m for Q1, so minus 108m for the full year does not seem unreasonable. This is my best guess at the moment, but its not an extremely through forecast. I haven't checked each individual quarter last season. Are there any other one-off costs? Could we expect more income? We will make money from players being at the WC, think its 100k per player. Did we make much money from playing the two games in Spain? How will we do in the Europa League? Will we go far in the cups? Could as well end up being like minus 60-70m. But unless there is any misunderstandings on my part it should not be much better than that -- with no improvements in sight for 23/24 as long as its business as usual and no CL play.
Have you included depreciation on property twice? Both in other expenses and as a seperate item in your overview?

According to my calculation (summarizing the items in your picture) other expenses was £116 mill in 2022 and £75 mill in 2021 (not including exceptional items). In your initial calculation you had other expenses at approx £190 mill in 2023 and £168 mill in 2024. Quite a rise. Maybe you forgot to remove exceptional items that was included in ‘22s numbers?

Sorry, just struggle to make sense of it.
 

Messier1994

Deserves a tagline!
Joined
Oct 7, 2022
Messages
1,028
None of this affects oil rich clubs. If we dont get an oil daddy we are fkd. Oil clubs can just sponsor themselves from other businesses to increases revenue and just spend on the club to increase assets. Plus a load of other devious methods, including just paying the fine. In theory it looks like clubs will be forced to be well run but unless it stops the oil clubs I see no point. Am I wrong?
Yeah, you hit the nail on the head here.

These rules are primarily to prevent “economic doping”. Two teams are competing for one CL spot which provides 75m in additional income. One team takes a risk and spends the 75m to get the spot, that will turn the club bankrupt if they don’t get it. That is classic “financial doping”.

The problems with the oil states is something else, it’s about classifying if sponsor money (and other revenues like tickets sales) really are true or if it’s just disguised capital contributions. It speaks for itself that this is hard. City just did a piss poor job disguising it back in the day. Put a hat on ETH every game that reads our new owners name — how much is that worth? How easy is it for a supervisory body to state that buying the name rights for a stadium is worth “X” and not “Y”? Hence they get away with it.
 

C'est Moi Cantona

Full Member
Joined
Feb 15, 2014
Messages
7,608
This the worry from us supporters. How long will this drag on for?

Personally, I don't think they can afford to. Them not paying out dividends was a big turning point. Hopefully we'll hear some positive news soon.

@Messier1994 Thanks for all the input so far.

There is a lot of detail you have gone through. I will try and decipher it and see how I can try to summaries it all, and explain to people how a "partial sale" will not cut it, and we're truly messed without any BIG investment.

I don't think anyone would blame any would be buyer to make them sweat, they deserve every bit of stress that can put on them for what they've done to us.

Ultimately anything our next buyer can save on the initial purchase price will only benefit us in the long run, so much as I want it done now, a little bit of worry won't do any harm just as long as it gets done in the end.
 
Last edited:

red thru&thru

Full Member
Joined
Mar 2, 2004
Messages
6,936
I don't think anyone would blame any would be buyer to make them sweat, they deserve every bit stress thst can put on them for what they've done to us.

Ultimately anything our next buyer can save on the initial purchase price will only benefit us in the long run, so much as I want it done now, a little bit of worry won't do any harm just as long as it gets done in the end.
Yeah, agree.
 

50 Shades of O'Shea

New Member
Newbie
Joined
Dec 30, 2022
Messages
1
Many thanks guys!



Others expenses lumps together these posts:


I added two years, to get more context:
Operating Expense23/2422/2321/2220/2119/2018/1917/18
Employee benefit expense
326 351​
330 251​
384 141​
322 600​
284 029​
32 356​
295 935​
Amortization–intangible assets
158 667​
172 667​
151 462​
124 398​
126 756​
129 154​
138 380​
Other
167 917​
189 917​
156 917​
91 426​
111 419​
141 426​
129 691​
Total
652 935​
692 835​
692 520​
538 424​
522 204​
602 936​
564 006​

This is the underlying numbers for the two additional years.


The manual adjustments I have made is plus 22m for one time currency loss and plus 11m additional costs for the tour.

You are right that the finance cost is overstated in my forecast. The last five years it has been 24m, 25m, 27m, 36m and 85m. My calculation is based on the 85m figure of the Annual report for 21/22, Interest rates have gone up a ton of course like everyone knows and we have used our credit line this summer, so the debt is bigger, but that does not account for the full increase since most of our debt have fixed interest rates. In the AR for 21/22 its stated that the reason for this is "primarily due to an unfavorable swing foreign exchange rates".

I don't think Other expenses per se is overstated, but including 22m for unfavorable exchange rates as both an Other Expense as well as using last season's inflated financing cost attributed to the exchange rate is of course not correct.

What should the Financing Cost be? We know that the financing cost for 20/21 was 37.9m without currency impact. Interest rates have gone up and we have increased our borrowings. Interests are paid in dollar, which makes them more expensive. I think that should put the underlying financing cost at 40m. That also includes hedging etc. We already knows that we took a one time hit of 22m for the 1st quarter. So that makes the financing cost for 22/23 a total of 40m+22m=62m and for 23/24 a total of 40m, and we should also remove the 22m from other expenses for 22/23. That gives the following result:

I think this is counting a bit on the low side, since "Finance Income" -- i.e. profit on inter alia our hedging measures for the currency changes -- for 2024 is stated at 25m, but we don't account for any loss there. "Finance Income" was just 6m in 2021. At the same time, I let it stay there, since currencies tend to rebound. If the pound recovers against the USD, it helps us. All in all, 100m better than the previous version of the forecast. At the same time, I was aware of the risk for double counting some currencies loss (not to this extent though), but I let it be since there are reasons to expect some additional bad surprises in the books. The interest on our debt is tied to the economic state of the company, and increases additionally if we don't perform well (more risk, higher interst). And some sponsors can walk away if we don't make the CL two years in a row.

In any event, if we finish this season minus 108m, we still need to to post a profit of 48m next season (23/24) to not exceed the Accepted Deviance of minus 60m. If we miss CL next season, we wouldn't come close to that without taking massive measures, like selling of the players given as an example above, not replacing them nor bringing in any new players next summer.

Thanks for the input! Do you think the above adds up?

I like to underline that -- even if there are no additional misunderstandings or misinterpretations -- these guestimates could differ a lot from the actual result. We did post a minus 26m for Q1, so minus 108m for the full year does not seem unreasonable. This is my best guess at the moment, but its not an extremely through forecast. I haven't checked each individual quarter last season. Are there any other one-off costs? Could we expect more income? We will make money from players being at the WC, think its 100k per player. Did we make much money from playing the two games in Spain? How will we do in the Europa League? Will we go far in the cups? Could as well end up being like minus 60-70m. But unless there is any misunderstandings on my part it should not be much better than that -- with no improvements in sight for 23/24 as long as its business as usual and no CL play.
Just a general question; what methods have you used for forecasting the different items?

From what I can read in the UEFA regulations, unrealised currency gains/losses on debt instruments and hedging instruments are to be excluded from the calculations of Football Earnings. This accounted for approx. 35m in 22/21 (net of 58m loss on on debt facilities and 23m gain on derivatives). Thus, net finance still looks a little bit high.
I thought most of the interest rates were fixed?

As pointed out before also, depreciation looks to be incorporated twice (included in other operating expenses). Depreciation should be excluded altogether from the calculations as depreciation are non-monetary items, according to the UEFA guidelines.
 

Rawls

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This is from September by Swiss Ramble on Twitter. Here's what he wrote in the last month.
 

Messier1994

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[1]Just a general question; what methods have you used for forecasting the different items?

[2]From what I can read in the UEFA regulations, unrealised currency gains/losses on debt instruments and hedging instruments are to be excluded from the calculations of Football Earnings. This accounted for approx. 35m in 22/21 (net of 58m loss on on debt facilities and 23m gain on derivatives). Thus, net finance still looks a little bit high.
I thought most of the interest rates were fixed?

[3]As pointed out before also, depreciation looks to be incorporated twice (included in other operating expenses). Depreciation should be excluded altogether from the calculations as depreciation are non-monetary items, according to the UEFA guidelines.
1. The forecast just mirror 21/22 with known changes and trends (described in the post).

2. Nah, I am not an accountant, but a monetary item is for example a loan or something else that gives you a right to a certain amount of money of a certain currency. A non-monetary is for example goods, inventory etc. This is what -- should -- be included, i.e. foreign exchange results no matter if they are realised or not:
k. Foreign exchange result
The net of gains and losses on monetary items, whether realised or unrealised.


This is what not should be included:
Foreign exchange gains and losses on non-monetary items, whether realised or unrealised, are non-monetary items and must be excluded from football earnings (see Annex J.2.1 (l) and Annex J.3.1(l)).

I think you read that parts a little fast! ;) Or?

Most of the debt, 425$ million comes from the 'senior secured notes' with fixed interest (3.79%, I think). For the rest of the debt the interest is not fixed, and the margin also increases if our indebtness exceeds certain provisions.

Have you included depreciation on property twice? Both in other expenses and as a seperate item in your overview?

According to my calculation (summarizing the items in your picture) other expenses was £116 mill in 2022 and £75 mill in 2021 (not including exceptional items). In your initial calculation you had other expenses at approx £190 mill in 2023 and £168 mill in 2024. Quite a rise. Maybe you forgot to remove exceptional items that was included in ‘22s numbers?

Sorry, just struggle to make sense of it.
3. Good catch!I see now that there is a mistake in the spreadsheet for the 23' and 24' forecast. The intent was to have Operating expense plus Finance costs minus Depreciation–property, plant and equipment, but for 23' and 24' all three are just added together.

Also, Ronaldo's salary had been excluded but I had missed to remove Ole's severance. I also fine tuned the Finance Income figures for 23' and 24' (we hold securities that increase in value if the dollar gains value against the pound, to partly hedge our debt against such changes since the debt is in USD, hence financial income should decrease as the currency losses decreases).

Its getting better! Here is the new calculation:


Did anything else stick out to you guys?
 
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Messier1994

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This is from September by Swiss Ramble on Twitter. Here's what he wrote in the last month.
Thanks! That guy have kept track on a lot of usable data. The FFP calculation he made in the first link is against the old rules including the covid years. I have actually not looked at all how we stand against the old FFP that will be applied next summer to determine if we should be given a fine, will be allowed to play in the 23/24 UEFA tournaments etc. That won't impact what we do in the summer of 23.

I noted two things:
*Swiss Ramble calculated on the cost for our Youth Team+Women Team+Community activities to be 14m. I have calculated on 20m. This is just guesswork, SR used the same 10+2+2 number for Arsenal. Anyone have any input in this regard? Can't see that these figures are accounted for anywhere.
*Swiss Ramble used the exchange rate Pound/USD of 1.11. The exchange rate for Q2 should be better, with it currently being 1.21, and the average exchange rate should be around 1.15. With our USD borrowings totaling 650m USD, a 10% swing in the stirling/USD rate impacts our result wtih 65m USD in either direction. If it stays at around 1.20 the rest of the year, we should have a Net Finance Profit/Loss for 2023 closer to minus 30m than the current minus 42m. (in the forecast)
 
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